Assuming that there is a parallel shift in the yield curve, to immunize multiple liabilities: A. Cash flows in the portfolio must be dispersed around the horizon date. B. Cash flows in the portfolio must be concentrated around the horizon date. C. Distribution of duration of individual assets in the portfolio must have a wider range than the distribution of the liabilities.
i say C
C defintely. The other answers seem pretty far off , since there are multiple horizon dates and the wording of the other choices say ONE horizon date
hey B looks familiar …its the necessary condition for cash flow matching?
C - no doubt about it
yes yes yes boys and girls we all say c …but can anynone comment oin what B is?
It’s for multiple liabilities. B is for the single liability…
they are talking I believe about the cashflows from the portfolio becoming due to meet the liability as of the horizon date. (Kind of like a zero coupon bond whose outflows match the liability). As Janakasri mentioned above - this seems to be talking about 1 horizon date - which is not what a multiple horizon liability means.
Sorry for the late response. i sold my car 14 days ago and left the CFAI Fixed income book in it. It took me some time to get it back… This was in CFA EOC questions: Volume 4 Page 60 Question 14: If the distribution of the durations of the assets is wider than that of the liabilities, the durations of the assets after a parallel yield curve shit (wether up or down) will envelope the durations of the liabilities after the shift. The immunization may be maintained, although rebalancing may be necessary.
gotta hate those parallel yield sh!ts…