Portfolio Management and Wealth Planning【Reading 16】 regarding, following, versus, statements

clearlycanadian

Which of the following statements regarding the focus of a liability-mimicking versus an asset-only portfolio of pension plans is CORRECT? The liability-mimicking portfolio will have a:

A) low correlation with the liabilities and the asset-only approach will focus on investments with a low correlation to assets.

B) high correlation with the liabilities and the asset-only approach will focus on investments with a high correlation to assets.

C) high correlation with the liabilities and the asset-only approach will focus on investments with a low correlation to assets.

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In the liability-relative approach, the portfolio will be chosen for its ability to mimic the liability (i.e., the portfolio will have a high correlation with the liability). In the asset-only approach, the focus is instead on investments with a low correlation to assets.