Which of the following statements is incorrect?
A)Investing in a zero-coupon asset with a maturity equal to the desired investment horizon is one method of immunising against changes in interest rates.
B)Investing in a zero-coupon asset with a maturity equal to the desired investment horizon removes interest rate risk from the investment management process.
C)Buying a fixed-rate asset whose duration is exactly equal to the desired investment horizon immunises against interest
D)Using a fixed-rate bond to immunise a desired investment horizon means that the reinvested coupon payments are not affected by changes in market interest rates.

Question

Quizplus · Accepted Answer

Option D is incorrect because using a fixed-rate bond to immunise a desired investment horizon does not mean that the reinvested coupon payments are unaffected by changes in market interest rates. In fact, the reinvested coupons are subject to interest rate risk, as the rates at which these coupons can be reinvested may change over time.

Which of the Following Statements Is Incorrect