can anyone explain a bit what is actually the immu % and how it is related with the general interest %, is it the same as the reinvestment % ? I get confused by some contigent immunization questions…
many thanks…
immunization rate is used in managing funds against liabilities, reinvestment rate is used in fixed income coupon reinvestment.
thanks,
and how is the immunization rate related to general interest rate?
Based on Kaplan, Immunization rate is calculated with one of the three methods:
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YTM of zero coupon Treasury Bond (most conservative rate)
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Implied zero coupon yield of bonds with comparable duration and quality
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Making assumptions regarding changes in yield curve and reinvestment rates to get expected total return
So, the higher the interest rate, the higher the immunization rate in general. Copied some information from another thread.
https://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91356378
My conclusion:
YTM and Immunization Rates are both affected by the interest rate changes. They could be different but why? The book does not mention and didn’t find the answer yet so could be a level 4 material.
But if we are given two different rates (new YTM and new Immunization rate) like the blue box shown on page 225 of the Kaplan third book, we use two rates.
If the examples only has one new rate no matter they indicate that as the new YTM or new Immunization rate, we use that new rate as both of the YTM and Immunization rate.
really appreciate your explaination!! thanks!!!
No problem! I struggled with this concept once a while as well 