Immunization of coupon paying bonds is not a passive strategy because
I.the portfolio must be rebalanced every time interest rates change
II.the portfolio must be rebalanced over time even if interest rates don't change
III.convexity implies duration based immunization strategies don't work

Question

Quizplus · Accepted Answer

Choice I is true because interest rate changes will affect the coupons being paid, which will require the portfolio to be rebalanced. 
Choice II is true because even if interest rates remain constant, there will still be cash flows from the coupons that need to be managed. 
Choice III is false because convexity provides a way to enhance duration-based immunization strategies. Therefore, the correct answer is B, which includes only choices I and II.

Immunization of Coupon Paying Bonds Is Not a Passive Strategy