FIXED INCOME PART 1 - DONT UNDERSTAND THIS TEXT LINE THAT SAYS...

[preetig]

‘For an upward sloping yield curve, immunization target rate of return will be less than the yield to maturity because of the the lower reinvestment rate of return and vice versa’ (pg 33 cfai text volume 4)
Can somebody please help me understand this statement?

 

[defacto]

Anyone can correct me if I’m wrong, but my understanding is that with an upward-sloping curve, as the liability date approaches (i.e. maturity diminishes), rates are progressively lower, which means that income must be reinvested at a progressively lower rate. The yield-to-maturity calculation has an embedded assumption that the reinvestment rate is constant, i.e. the YTM rate.

 

[cpk123]

this is something that you should use the search function for. every year, year on year - the same question with the same exact statement comes up. and it has been explained many times before….