Silva asks the Company’s actuaries to develop an estimate of the Company’s future pension payments. Currently, the Company pays a cost of living adjustment (COLA) on retiree pension payments, which is based on the local consumer price index (CPI). In order to reduce current costs, the Company is considering limiting the COLA to only payments to those who have already retired. Cardoso tells Silva to factor the COLA limitation into his estimate of the benefit payment that will be made 15 years from now.
Silva presents Exhibit 1, noting that approximately half of the future wage inflation liability is assumed to correlate closely to CPI and half of the future real wage growth is assumed to correlate closely with domestic equities:
Exhibit 1 Components of Estimated Future Benefit Payments in Year 15
Liability Exposure Amount of Payment (in R$* Millions)
Retirees 10
Deferreds 5
Active Accrued 9
Future Wage Inflation 6
Future Real Wage Growth 2
Based on Exhibit 1, in a liability-mimicking portfolio, which of the following amounts is closest to the pension payments
in Year 15 that could best be mimicked using real (inflation-indexed) bonds?"
答案 $10M + 0.5*$6M = $13M
Based on Exhibit 1, in a liability-mimicking portfolio, which of the following amounts is closest to the pension payments
in Year 15 that could best be mimicked using nominal bonds?"
