A key assumption to achieve immunization in bond portfolios is that...

Achieving immunization in bond portfolios relies on the concept of managing interest rate risk while ensuring that the investment strategy meets the future cash flow requirements. The correct answer highlights a critical assumption regarding the relationship between the cash flow yield of the bond portfolio and the yield to maturity (YTM) of zero-coupon bonds.

When the cash flow yield on a bond portfolio equals the change in YTM on a zero-coupon bond, it signifies that the portfolio's changes in cash flow will match any changes in interest rates, allowing for a stable investment period where cash outflows are aligned with liabilities. This balance is crucial for immunization, as it protects the portfolio from interest rate fluctuations, thereby maintaining the value needed to meet future obligations. This relationship also helps ensure that any reinvestment of cash flows occurs at rates that reflect current market conditions, making it easier to mitigate the impact of changing yields.

In contrast, assuming that interest rates will remain constant or that all bonds possess the same maturity date oversimplifies the realities of the bond market, as interest rates naturally fluctuate over time. Additionally, while efficient markets may influence pricing and yield, they do not directly preserve the matching of cash flows and YTM changes essential for immunization.

Thus, the assumption