Final answer:
Immunizing a bond is a financial strategy used by investors to protect against interest rate risk by matching the bond's cash flows to their investment horizon. It ensures a known rate of return, distinct from biological immunity that refers to protection against disease.
Step-by-step explanation:
When someone wants to immunize their bond, they are referring to a strategy to protect their investment from the risk of interest rate fluctuations. This process involves matching the duration of the bond's cash flows with the investor's investment horizon, effectively ensuring that the bondholder's interest and principal payments will be sufficient to meet specific future expenses regardless of changes in the interest rates.
A bond is a financial contract through which a borrower like a corporation, a city or state, or the federal government agrees to repay the amount that it borrowed and also a rate of interest over a period of time in the future. The bond yield is the rate of return a bond is expected to pay at the time of purchase. The bondholder is someone who owns bonds and receives the interest payments. By immunizing a bond, the investor can achieve a known rate of return, barring any default on the bond.
It's important to differentiate this financial concept from the biological context where immunity occurs through vaccination or passive immunity transfer, providing protection against diseases, and is completely unrelated to bond immunization.