4. Higher than average ratio of retired lives to active
lives shortens the time horizon due to greater
number of current retirees.
Part C
A change to 6 percent in the discount rate applied to the plan liabilities would cause the funded
status of the BC Plc pension plan to deteriorate.
Reducing the discount rate (from 7 percent to 6 percent) applied to the plan liabilities would
increase the present value of the plan’s benefit obligations, while the value of plan assets would
not change (the assumed long-term rate of return is unchanged at 8 percent). The widening in the
difference between the value of the plan assets and the value of the plan’s benefit obligations
(due to increase in liabilities) would cause the plan’s already under-funded status to deteriorate
further. (PV assets – PV liabilities).
LEVEL III, QUESTION 2
Topic: Portfolio Management -Risk Management
Minutes: 18
Reading References:
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