Which of the following best describes the matching required for immunization?

Immunization is a strategy used in bond portfolio management to ensure that the portfolio can meet its liabilities at a specific future date, regardless of interest rate movements. The key aspect of immunization is to match the durations of assets and liabilities. Duration measures the sensitivity of a bond’s price to changes in interest rates, providing insight into the time-weighted cash flow of the asset. By ensuring that the duration of the assets matches the duration of the liabilities, a portfolio can safeguard against interest rate risk, helping to ensure that the funds available when liabilities come due will be sufficient to meet those obligations.

Matching asset value to liability value, while a consideration in overall portfolio management, does not specifically account for the timing of cash flows and interest rate changes. Similarly, matching coupon rates and credit ratings can be important in bond investing, but they do not directly relate to the concept of immunization, which fundamentally relies on duration matching to protect against interest rate fluctuations.