What is necessary to immunize multiple liabilities?

To effectively immunize multiple liabilities, it is essential that the present value of assets equals the present value of liabilities. This condition ensures that the cash flows from the assets will be sufficient to meet the obligations created by the liabilities as they come due, thereby creating a hedge against interest rate fluctuations.

Immunization is a strategy that aims to shield the investor from interest rate risk, guaranteeing that the assets will provide adequate funding for the liabilities regardless of changes in interest rates. By matching the present values, the investor avoids situations where changes in interest rates could adversely affect the relationship between assets and liabilities.

While other considerations about distributions and durations of assets and liabilities are important for risk management, the fundamental requirement for immunization is the equal valuation of present cash flows of assets and liabilities. Proper alignment in terms of duration and maturity can enhance the effectiveness of immunization, but they do not replace the necessity for equal present values in achieving that goal.