Contingent immunization

Question

Quizplus · Accepted Answer

Contingent immunization is an investment strategy that allows the portfolio manager to actively manage a portfolio of bonds while using an immunization amount as a benchmark to determine when the manager should switch to a passive strategy. If the portfolio falls below the immunization amount, the manager reduces active management and switches to a passive strategy to lock in gains and ensure that the portfolio is protected from interest rate risk. Therefore, option A is the correct answer as it states that contingent immunization uses the immunization amount as a benchmark to determine the manager's ability to continue active management. The other options are incorrect as they do not accurately describe the nature of contingent immunization.

Contingent Immunization