Immunization with coupon paying bonds requires matching the mac duration of which of the following?

Immunization with coupon-paying bonds is a strategy used to protect the value of a bond portfolio against changes in interest rates by ensuring that the overall interest rate risk is balanced. This is accomplished by matching the modified duration of a portfolio of assets to the expected cash flows of liabilities.

When the question focuses on matching the Macaulay duration, it emphasizes the time-weighted sum of the cash flows, which specifically needs to align between the assets (the bond portfolio) and the liabilities (the obligations that need to be met with those cash flows). By matching the durations over time, investors can ensure that any changes in interest rates will equally affect the value of both the assets and liabilities, thereby maintaining the portfolio's value relative to its liabilities throughout the investment horizon.

Matching the durations prevents the investor from being at risk of interest rate movements affecting their ability to meet future payment obligations. If the assets and liabilities have the same duration, then their present values will react similarly to interest rate changes, which is crucial for maintaining financial stability.

The notion of matching just assets or just liabilities individually would leave one side exposed to interest rate risk. Similarly, focusing solely on market conditions does not directly address the relationship between cash inflows and outflows related to the investment