Choose the best multiple choice:
When considering both their assets and their liabilities many institutions try to immunize their portfolios against interest rate risk. Which of the following is a true statement:
a) When an institution matches the durations of its assets and liabilities, price risk is eliminated but reinvestment risk continues to be a potential problem.
b) When an institution matches the durations of its assets and liabilities, reinvestment risk is eliminated but price risk continues to be a potential problem.
c) Assuming interest rates do not change, if an institution begins by strictly matching the durations of their assets and liabilities they wonĆ¢ĀĀt need to rebalance later, even if the durations of their assets and liabilities change over time at different rates.
d) When significant market interest rates changes occur, convexity differences between an institutionĆ¢ĀĀs asset and liability positions can create a need to rebalance a previously immunized portfolio.