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Strategy to derive a specified rate of return regardless of what happens to market interest rates over holding period.

Seeks to offset the opposite changes in bond valuation caused by price effect and reinvestment effect

-price effect: change un bond value caused by interest rate chnages

-reinvestment effect: as coupon payments are received, they are reinvested at higher or lower rates that original coupon rate.

Bond immunization occurs when the average duration of the bond portfolio just equals the investment time horizon

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16y ago

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