BOND BASICS - II
cost of the investment. Hence, the net present values of cash outflows and cash inflows equal zero when IRR is used as the discount rate. The yield to maturity in an IRR.
Immunization Immunization is the structuring of a portfolio in such a way that any changes in the general level of interest rates will not negatively affect the total expected return from a bond or bond portfolio. There are some important assumptions underlying immunization through duration, chief among which are that when the general level of rates changes, all rates change in a parallel fashion, and that such changes will be "moderate". The latter assumption is necessary when convexity is not used, since duration is only accurate for relatively small changes around the status quo.
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