Investments

Question 1

You have a required rate of return of 20% . You want to invest in a stock paying an annual dividend of .64 and is projected to increase its earnings and dividends by 17% annually, Current market price is 36.50. What is the intrinsic value of the stock per share?

Answer 1

24.96

V=D(1+g)/(r-g)

(.64 *1.17)/(.20-.17)

Question 2

Using the constant growth dividend valuation model. What is the intrinsic value of a stock that pays a dividend this year of $2, and is expected to growth at 6%. The beta is 1.5, the risk free rate is 3% and the market return is 12%

Answer 2

20.19

Must use CAPM to calc the required return of the investor
R=Rf+b(Rm-Rf)

Take that and throw it into your dividend growth model as the required return.

Question 3

What is a firm commitment?

Answer 3

The investment banker has an agreement to purchase the entire issue and resell to the public. In a firm commitment, the issuing corp does not bear the risks if an entire issue is not marketed.

I got this one wrong because the other answer was “banker agrees to sell a minimum number of share before the offering close date” This is not a firm commitment it is actually the best effort agreement!

Question 4

You bought a stock at the minimum margin, when the stock was trading at $10. The stock paid quarterly dividends of $.25. Holly held the stock for one year and sold the stock when it was trading at $11. What was Holly’s holding period return?

Answer 4

Answer is 40%

So as soon as you see minimum margin you should think 50% of the purchase must be covered by you b4 borrowing.

HPR = Selling-Purchase +/- cash flow/purchase

The biggest thing to remember is that the numerator includes the full amount of the purchase. Meaning, you need to include the $5 you paid in cash and $5 that you borrowed (also remember that your cash flows would include margin interest but that’s not in this problem). For the denominator you only use the equity portion of the purchase so (10 *.05). Dalton views this as the out of pocket purchase price vs the total purchase price

Question 5

Describe the the listed biases:

Affect Heuristic

Anchoring

Availability Heuristic

Answer 5

1. Is soley based on ones judgement of the company but does not account for the financials. It’s their view on if the company is good or bad.
2. Your thought/view is attached to one concept no matter what logical discussion you have, the investor will stick to their belief because of 1 fact.
3. As it says in the name, this is your attachment to an idea based on what information is readily available for you. If you receive an update from morningbrew your will base your decisions on that instead of confirming from other sources.

Question 6

Which of the following option strategies would be considered the most risk?

Buying a call.
Buying a put.
Selling a covered call.
Selling a put.

Answer 6

Put the answers in this one to see if I make the same mistake. What just clicked is the fact that a covered call is a security that the investor already owns. This offsets the loss associated with it.

The correct answer is selling a put because of the options given the stock could fall to 0. Compared to just buy/selling a put/call you are just dealing with premiums.

Question 7

Define the characteristics of a muni bond investment trust

Answer 7

Because its a UIT new securities cannot be added once the trust is established. That also means that shares are not purchased or sold (also not called shares they are units!). Lastly, the trust is self liquidating

Question 8

Robin purchased a mutual fund at NAV of $20.00 and sold it 8 months later at $21.00. During the time he owned the fund, he received a LTCG of $1.00/share and a qualified dividend distribution of $.75/share from the mutual fund. He has a marginal tax rate of 32%. The tax on LTCG is 15%. What is his after-tax holding period return?

10. 84%
11. 5%
12. 8%
13. 3%

Answer 8

I don’t full understand this one yet just looking at the formula

Since this is a ST holding period, it’s ordinary income at the marginal tax rate for the price increase. Since the dividend distribution is a qualified dividend, it receives capital gians tax treatment.

HPR = (SP - PP +/- CF) × (1-TR) / PP

[($21.00 - $20.00) × (1 - .32)] + [($1.00 + $.75) × (1 - .15)] / $20.00

Answer: 10.84%

(remember to follow order of operations: Parenthesis, exponents, multiplication, division, addition, subtraction)

Based on Subchapter M or pipeline theory, investment companies must payout at least 90% of their portfolio earnings. If a mutual fund sells a position they hold at a gain, it passes the gain, like-kind, to its investors.

Question 9

What is a Mortgage REITs?

Answer 9

Instead of equity REITS that would receive its income from the property itself, Mortgage REITs are more volatile bc they invest and receive monthly income from investing in real estate loans

Question 10

Jan Grimlaw is interested in purchasing a municipal bond that pays $35 interest on a semi-annual basis. The bond is selling at par of $1,000 and Jan is in the 28% marginal tax bracket. She would like to know what pre-tax yield she would need to receive to have a comparable corporate bond investment.

Answer 10

9.72%

Tax exempt Rate/(1-marginal tax rate)

Calc muni bonds coupon for the tax exempt rate

Question 11

Which shares are repurchased by the corporation?

Answer 11

They are treasury shares!

Another type of share are authorized, they have be unissued or outstanding but not repurchased

Question 12

Gabby, a CFP® professional, is working with Debby, a retiree. Debby has a concentrated position in a highly appreciated growth stock, which makes up the majority of her assets. Debby requires income from her portfolio but is hesitant to sell her stock position. Which of the following strategies should Gabby recommend that would provide the least amount of risk to the retiree?

Answer 12

Sell a covered call on the stock option. This will generate income for because it’s a strategy using the shares

Question 13

A stock that has produced superior earnings and rates of return but has gone mostly unnoticed by securities analysts and is often considered underpriced is said to benefit from the:

Answer 13

The neglected firm effect is one of the market anomalies. This anomaly is said to exist because the security in question is allowed greater potential for movement as a result of the lack of scrutiny by analysts.

Question 14

An investor buys a share of stock for $50. At the end of the first year, he purchases a second share for $55. At the end of the second year, the stock is worth $62 per share and the investor sells both shares. (The investor received a cash dividend of $2 per share each year.) What is the time-weighted return on this investment?

Answer 14

15.2%,

Need to remember that time weighted only cares about the security not the investor.

So for this we have our initial purchase
Cf (50)
Cf (2)
Cf (64) due to the dividend you need to add.
IRR=

Again, we don’t care how many shares because this is the time weighted so we just add the 1 $2 dividend

Question 15

Bristol-Buyers Company has a market price of $36.00 per share with earnings of $3.00 per share, a beta of 1.1 and a dividend of $1.20, which means a dividend payout ratio of 40%. Earnings for next year are projected to increase by 25%, and the retention ratio is projected to remain at 60%. Using the price/earnings multiplier, to what level might your client expect to see market prices move in a year?

Answer 15

The $36.00 per share price is divided by the $3.00 earnings per share resulting in a price/earnings multiplier of 12. The increase of earnings by 25% results in a projected earnings of $3.75 next year. This new earnings times the P/E multiplier of 12 (assuming the P/E ratio remains constant) results in a price of $45.00. The dividend information provided is unnecessary in answering the question.

Question 16

Specific companies are researched and chosen as investments based on their outstanding investment possibilities by analysts who practice:

I’ll give you a hint it’s either bottom or top but you need to tell me why

Answer 16

So the answer is the bottom up. That’s because the bottom starts from the company itself, takes it out into the industry, and finally the economic climate.

The reason bottom up is the answer is bc analysts use this to find that next big stock that no one knows about yet

Question 17

The form of technical analysis that utilizes Advances and Declines (also known as Breadth of the Market) as an indicator is known as:

Answer 17

You dummy, how many times have you seen this in trading?? It’s the price indicator! Advances and Declines are all about the price.

Volume indicates the number of shares being traded

Question 18

Which one of the following statements correctly matches a technical indicator to the information it provides to signal a bear market?

Odd lot theory indicates that the ratio of odd lot purchases to odd lot sales has been falling.
Dow theory confirmation after the fact not predictive indicates that there is a decline in both the Dow Jones Industrial Average and Dow Jones Utility Average.
A moving average chart indicates that actual prices have dropped through the moving 200 day average line.
Barron’s Confidence Index indicates that the yield differential between municipal bonds and corporate bonds is increasing

Answer 18

Choice “A” - Odd lot purchase levels indicate the number of small investors in the market. Odd lot theory says that small investors are always wrong. If odd lot purchases are falling relative to odd lot sales, it indicates the little guy thinks the market will fall. Since the little guy is always wrong, this would indicate a rally is coming, not a bear market. Choice “B” - The Dow Theory deals in three levels of market activity over time. Choice “D” - Barron’s does not have a confidence index.

Question 19

Tell me which 2 belong to bottom up equity managers and the other 2 are top down

Group rotation managers.
Value managers.
Market timers.
Technicians.

Answer 19

So group and market times are top down

Value and technicians are bottom down

Question 20

Haley Mills has been a client of yours for quite some time. She recently unearthed some share certificates that her grandmother had left to her a few years ago. These shares that Grandma Mills bought were from an Internet start up. The timing was perfect, because the firm was about to undertake another stock offering and Haley had preemptive rights. Of the firm’s initial 1,700,000 share offering, Grandma Mills had invested enough to buy 10,000 shares at $11 per share. The new offering was an 850,000 share offering at $87 per share. If Haley fully exercised her preemptive rights, how much total cash would she pay for the shares in this new offering?

Answer 20

The 10,000 share purchase of the 1,700,000 share initial offering was .59% (10,000 ÷ 1,700,000). That amount relative to this new offering of 850,000 shares was equivalent to 5,000 (850,0000 × .59%) shares if all preemptive rights were exercised. This 5,000 shares times the $87 offering price means that to fully exercise this right, Haley would require $435,000.

Question 21

If the market risk premium were to increase, the value of common stock (everything else being equal) would:

NOT change because this does NOT affect stock values.
Increase in order to compensate the investor for increased risk.
Increase due to higher risk-free rates.
Decrease in order to compensate the investor for increased risk.

Answer 21

A need for higher return to meet the onset of higher risk would drive the price of a security down (all other things being equal).

Using an example where rm is 14% and rf is 3%, and a beta of 1.1, the required return under the SML is:

r = .03 + (.14-.03)1.1 = 15.10%

Then let’s assume the most recent dividend is $2 and the growth rate is 7%. The price of the stock using the constant growth model is

V= (2 x 1.07)/(.1510 - .07) = $26.42

Now let’s increase the rm to 15%. Using the SML:

r = .03 + (.15-.03)1.1 = 16.20%

The new price under the constant growth model is:

V = (2x1.07)/(.1620 - .07) = $23.26

Question 22

Barbara Reed owns an LMN, Inc. bond with a par value of $1,000. LMN is a AA-rated bond that matures in 7 years. Barbara receives $55 of interest income from LMN semiannually. Comparable debt, i.e., is AA-rated, 7-year maturity, yields 12%. The bond’s duration is 5 years. What is the intrinsic value of the bond?

Answer 22

Answer is 953.53. Not even going to write this out because you should get this by now.

Question 23

Camping the US, Inc. is currently trading at $25 a share and will pay dividends of $1, $0, $2 respectively, at the end of this year and the following 2 years. They expect dividends to level out at a 3% growth rate after that. Your client is interested in purchasing some shares and would like to know the current value of the shares. Your client has a 7% required rate of return. What is the value per share of Camping the US, Inc. if you use the dividend growth model?

Answer 23

This is 2 parts due to the uneven cash flows of the dividends. So the first step is the growth model.

Our D0 will be 2 because it is the last year dividend, then it’s just 1+g/(r-g)= 51.50

From here we need cash flow.

Cf0 0
Cf1 1
Cf2 0
Cf3 2*51.50
I=7

NPV = 44.6065 (the intrinsic value currently)

Question 24

Jenny bought 250 shares of XYZ stock at $30 per share, with an initial margin of 60%. She paid 8% margin interest annually. One year later she sold all of the stock for $10,500. Jenny is in the 35% marginal tax bracket, 15% for capital gains, and itemizes her deductions. What is Jenny’s holding period return?

61.33%
40%
51.47%
34%

Answer 24

To calculate the holding period return, use the following:

HPR = [ (Sale price - purchase price) +/- cashflows* ] / purchase price or equity invested

HPR = [ ((10,500 - (7,500 x .40)) - (7,500 x .60)) - (7,500 x .40 x .08) ] / (7,500 x .60)

HPR = [ ((10,500 - (3,000)) - (4,500)) - (240) ] / (4,500)

HPR = [ 2,760 ] / 4,500

HPR = .61333 or 61.33%

*cashflow in this problem is the margin interest.

Choice B is not correct because it does not factor in cashflows or the margin purchase.

Choice C is not correct because that is the calculation for the after-tax holding period return.

Choice D is not correct because that is the calculation for the after-tax holding period return without the margins.

Question 25

Assuming the current market yield for similar risk bonds is 8%, determine the discounted present value of a $1,000 bond with a 7.5% coupon rate which pays interest semi-annually and matures in 17.5 years.

Answer 25

953.34

Question 26

A client has a $1,200,000 portfolio consisting of the following four stocks:

$300,000 ABC @ 1.1 beta
$225,000 RTR @ 0.7 beta
$405,000 XYZ @ 0.3 beta
$270,000 PDQ @ 1.3 beta

Answer 26

.80

Question 27

A yield curve can be described as a curve that:

Answer 27

The yield curve will show the difference between long term and short term government debt

Question 28

You are given a set of benchmarks to use as an evaluation of your XYZ mutual fund, which one should you pick?

1. Beta = .75 squared = .80
2. Beta = 1.1 squared = .90
3. Beta = 1.25 squared = .95
4. Beta = 1.5 squared = .50

Answer 28

You would pick the 3rd option bc of the squared of .95. Remember this tells us how much of the return was solely the investment. .95 was mostly due to that fund so we would use that as the benchmark

Question 29

Friendly reminder card. BREATH YOU GOT THIS!!!

Answer 29

THIS WILL BE YOUR LIFE A WALK IN THE PARK GET EXCITED. YOU WANT THAT CFP NOW EARN IT

Question 30

Coerrelation vs coefficient

Answer 30

You always get tripped on this! Remember when you see corelation, you think ok that’s how alike the funds are. A correlation of less than 1 gives us diversification benefits. Now coefficient should be viewed as the correlation coefficient! That’s our squared, bread and butter of the learning. You have coefficient, you square that for our unit of measurement. If we get .60 as the answer, that means 40% of the return was because of the investment!! Finally, because this is a data dumb beta will be used with r2 is greater than 70, meaning the treynor ratio

Question 31

What is the deviation of the portfolio invested in 60% of stock A with a 15% reutnr and a deviation of 17.5%, and the balance in stock b with an 18% return and a 16.75% deviation. We have a .29 correlation between the 2 securities.

Don’t use the shortcut, figure out the problem

Answer 31

Answer will be 14%

First, u must use the COV formula = stdastdbcorrelation

next, you calc the std dev using the weighting (it’s on the formula sheet)

Question 32

More practice on std of a portfolio:

1. Std of 17.5%, rate of return = 16.3% and weight in portfolio 60%
2. std of 24.9, rate of return of 32.1%, and weight = 40%

What is the portfolio risk if the correlation coefficient of these two investments are negative -.35

Answer 32

Answer will be 11.6%

Hint: dont forget to square root the formula, anddddd the std deviation of the 2 investments should be out of % when calculating the cov

Question 33

Walt Purchased a 1,000 bond that matures in 7 years. The bond has a current yield to maturity of 8% and has a duration of 5.85 years. Walt believes market int rates will increase by 1%. If he is right, what will the bond investment increase by?

Answer 33

The answer is 5.42%

Duration tells us the change in a bond price given any change to interest rates.

Formula: Channge in bond price = -Duration(change in y /1+y)

-5.85(-.01/1.08) = 5.42%

Question 34

You have an investment portfolio with the following returns as well as the tbills

             Fund Returns  T Bill returns year1               4%                  4%                year2               -6%                1% year3               -6%                3% year4               12%                2% year5               -4%                5%

What is the shape ratio of the mutual fund?

Answer 34

Answer is -.381

So we need to find each part to use the formula bc Sharpe is rp(avg returns)-rf/std of the portfolio

For rf/rp we need to take the avg of both returns

Rf= 3
Rp=0

Next we calc std using all of the returns = 7.8740

Finally, use Sharpe to get an answer

Question 35

What is the best way for an investor to control volatility, given just std and correlation

Answer 35

To control it we use lovely diversification, just bc we might be given an answer choice with 1 stock with lower std does not mean that’s the answer. The best way to control this is with 2 equally weighted stocks that have a negative correlation

Question 36

You buy a bond for $880 with a 9% coupon. You sell the bond after one year when it was paying paying you a current yield of 10%. What is your holding period return?

Answer 36

Answer is: 12.5%

First, you must calc your selling price. We do this by using the current yield. We know the formula is CY = Coupon/Bond Price

So .10=90/P

Price = 90/.10 = $900

Next it will be the HPR

900 - 880 + 90/880 = 12.5%

Question 37

xyz company anticipates the following dividends, starting next year: year1 2.25, year 2 2.75, year3 3.01. After the third year they are anticipated to grow at 6%. IF the rate of return is 12%, how much would he be willing to pay for the stock?

Answer 37

44.20

First, you need to use the growth model on 3.01 to get 53.18

Next, CF approach to find the NPV. Hint: cf0 = 0 and you add to the final cash flow. Also don’t forget 12 as your I dummy

Question 38

Your margin requirements are 50% initial margin and 25% maintenance margin. You purchase a total of 200 shares at $100 per share using full margin amount for the 200 share purchase. Shortly after, share prices fall to $50 per share. What will your margin call be?

Answer 38

2,500

Required equity = $50*.25 = 12.50 per share
Actual Equity = 50-50 = 0(current price-loan amount)
To meet required equity - 12.50 per share * 200 shares = $2,500

Question 39

Your portfolio has a std of 12%. The market portfolio std dev is 15%. The correlation of your portfolio to that of the market is .75. What is the Beta of your portfolio?

Answer 39

.60

We need to use the Beta formula on the sheet. So first would be to calc COV(another formula on the sheet.)

so .75.12.15/.15squared = .60

Next part of the formula will look like this: .75*.12/.15

Question 40

The Chesapeake Bay apartment complex contains 60 one-bedroom apartments renting for $650 per month. In addition, the complex generates $625 per month from laundry, parking, and vending machines. Vacancy and collection losses have averaged 8% of Potential Gross Income (PGI) and are expected to continue at about the same rate in the future.

Annual expenses totaling $117,000 include:

Property taxes = $22,000

Property management = $15,000

Maintenance and utilities = $36,000

Swimming pool = $13,000

Professional fees = $8,000

Other expenses = $23,000

What is the property’s net operating income?

Answer 40

Gross rental receipts ($650 × 60 × 12) = $468,000 plus non-rental income ($625 × 12) = $7,500 equals potential gross income (PGI) ($468,000 + $7,500) = $475,500.

PGI minus vacancy and collection losses ($475,500 - (.08 × $475,500) ) = $437,460 equals Effective Gross Income (EGI).

EGI minus expenses equals net income ($437,460 - $117,000) = $320,460.

Net Income + Interest + Depreciation = Net Operating Income

320,460 + 0 + 0 = 320,460

Since there is no information regarding interest or depreciation expense, Net income = NOI in this question.

Question 41

Which type of investor benefits most from the tax advantage of preferred stocks?

Answer 41

Corporate

Corporate dividend-received deductions are based on ownership. TCJA of 2017 updated the amounts. If a corporation owns 20% or less, they have a DRD of 50%. If 20% or more (and less than 80%) of the corporation paying the dividend is owned by the company receiving the dividends, then up to 65% of the dividend is tax free. If ownership is greater than 80% (affiliated corporations) the DRD is 100%.

DRD = dividend-received deductions

Question 42

The bond investment strategy of “riding the yield curve” involves:

Answer 42

Riding the yield curve refers to the purchase of debt instruments in anticipation of fluctuations in the rates of return on both long and short-term instruments. Rising rates of interest require repositioning a portfolio in advance of the rise in order to avoid significant price drops. These moves are based on anticipated changes in the yield curve.

Question 43

Jennifer has asked you if you would advise her regarding several different types of investments. Her preference would be for an investment where she can simply put a fixed number of dollars into an investment and not worry about it. She wants the following: completely tax-advantaged investments, a moderately competitive interest rate, with relative safety, and very low fees. She would eventually like to be assured of getting her principal back, but does not require a great deal of liquidity. Which of the following would you recommend to her in order to best meet her goals?

Municipal Bond Mutual Fund.
Municipal Bond Unit Trust.
High Yield Money Market Fund.
Tax Free Money Market.

Answer 43

UITs have no money manager, just a trustee, the fees will be lower. You can sell back to the fund or wait until maturity. As listed below, the mutual fund will attempting to buy and sell different bonds while the trust will maintain the 1. Attaining the goal of the investor to minimize the tax.

Due the tendency of Muni-Bond Fund managers to attempt to maximize profits by buying and selling various bonds, there are generally taxable gains to be dealt with in most of these funds. High Yield and Government Bond funds offer no tax advantage. Tax Free Money fund is highly liquid and the client stated they did not require much liquidity, nor does it have a moderately competitive interest rate.

Question 44

Company A has 60% debt and 40% equity; Company B has 20% debt and 80% equity. Assume both companies have the same dollar amount of assets and net income before interest and taxes. Which one of the following statements is true?

The unsystematic risk for the two companies is about equal.
Company A’s tax obligation will exceed Company B’s.
The company with the higher return on equity should be purchased by a risk-averse investor.
The return on equity for Company A can be expected to exceed the return on equity for Company B.

Answer 44

Company A has a smaller amount of its assets financed by equity, therefore, with the same earnings in net income as Company B, the level of return on the equity of Company A would be greater.

Sample information (net income is provided, not calculated in this sample information):

A: Assets $10M; Liabilities $6M; Equity $4M; EBIDTA = $1M; I/Y = 5% Net Income = $700K; ROE = $700,000 ÷ $4M = 17.5%

B: Assets $10M; Liabilities $2M; Equity $8M; EBIDTA = $1M; I/Y = 5% Net Income = $900K; ROE = $900,000 ÷ $8M = 11.25%

EBIDTA = Earnings before interest, taxes, depreciation, and amortization

Question 45

Tell me what type of average the NASDAQ, the NYSE Composite, and the Wilshire all use, next will be the Dow Jones Industrial. Finally, tell me what the Value Line uses.

Also, tell me what they mean

Answer 45

NASDAQ, the NYSE Composite, and the Wilshire all use value weighted average, while the Dow Jones Industrial is a simple price weighted average. Only Value Line uses the geometric average.

Question 46

John Risotto has a cash need at the end of nine years. Which of the following investments best meets this need and serves to immunize the portfolio initially?

An 11-year maturity coupon bond.
A 9-year maturity coupon Treasury note.
A series of Treasury bills.
I only.
II and III only.
II only.
I and II only.

Answer 46

The correct answer is A.

The process of portfolio immunization entails not maturity of a security, but its duration. Duration is based on coupon rate. The larger the coupon payment, the shorter the duration. This being the case, a bond generally pays higher interest than a note, and a note pays higher than short-term Treasury bills. Given this information, one could reasonably expect a shorter duration (than time to maturity), while receiving better immunization from the bond.

Question 47

The Federal Reserve is currently tightening the money supply. As the treasurer and CFO of your company, which of the following best describes the hedge position that you should undertake and the reason for taking it to protect your company’s long-term bond inventory.

A short position to hedge against increases in bond prices.
A long position to hedge against increases in bond prices.
A short position to hedge against decreases in bond prices.
A long position to hedge against decreases in bond prices.

Answer 47

The correct answer is C.

You own a long position on the bonds. A tightening of money will cause a rise in the interest rates, thus exposing your bonds to a loss in value when bond prices decrease as a result. You should undertake a short (sell) position in interest rate futures to protect your position.

Question 48

During the peak of the economic cycle, which of the following should one undertake?

Sell debt instruments
Begin allocations to cash positions
Buy debt instruments
Sell gold and real assets

Answer 48

Sell debt and begin to shift to cash

At the peak of the market, there will be high demand for debt instruments, driving prices of bonds up. Bonds have an inverse relationship with interest rates, not the market. They tend to be a more stable (but still can have price movement) investment option when the market is making swings. It would be safer to move to cash when the market is expected to make a downturn.

Interest rates will lag a bit after the peak of the cycle, and if you own bonds it would be a great time to sell for capital gains.

The goal of investing is to buy low, sell high.

Since inflation is still on (and rising after the peak), it often proves to be a good time to acquire metals rather than sell them.

Question 49

The primary reason for using a ladder bond strategy is to:

Lower overall interest rate risk.
Achieve greater capital gains as the yield curve changes shape.
Avoid the “wash sale” rule.
Immunize the bond portfolio.

Answer 49

Lower int rate risk

The ladder bond strategy staggers maturities and in doing so, reduces the exposure to interest rate risk. “B” is incorrect because longer term maturities experience the biggest percentage increase when interest rates decrease. Laddering bonds requires purchasing short and intermediate term bonds, along with long term bonds. “C” is incorrect because laddering bonds to avoid the wash sale rule is not the primary objective, reducing interest rate risk is the primary objective. “D” is incorrect because bond immunization suggests the portfolio has eliminated interest rate and reinvestment rate risk. Laddering bonds does not eliminate either interest rate or reinvestment rate risk, however it does reduce interest rate risk.