In Volume 3 page 339 there is a comment on determining the target return which reads that the immunization target rate return for un upward sloping yeild curve will be less than the yeild to maturity because of the lower reinvestment return. I would have thought that with an upward sloping yeild curve the reinvestment return would have been higher and thatwould lower the return required to immunize the portfolio. Could someone explain this concept to me?
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Say you buy a 10y bond with annual coupons. A year from now you receive a coupon which you need to invest for 9 years (to match your investment horizon). As you ride down the yield curve you’ll reinvest coupons at declining yields.
Sry to steal your thread, but seems like Fixed Income Portfolio Management reading used to be from Fabozzi last year, this year it’s some Gifford Fong guy. I find the style of writing very unorganized, with lots of repetitions, while missing the intuitive teaching… I ordered Fabozzi’s handbook, thought I might need a bible anyway if I am gonna be in this industry for life…
exotic - this is what I wrote on my thread … I have found it confusing too … and now reading it over for the second time … a little easier but still not very clear how all the sub-areas tied together. although the 2006 cfai questions were a lot straight forward than the text