I totally don't understand what the hell those are.
An explanation from A-to-Z please.....
thx.作者: skycfa 时间: 2011-7-11 19:35
The components of a pension fund's liabilities can be categorized as inflation-adjusted or not inflation adjusted.
Real return bonds will best mimic the components of the liability that are inflation-adjusted.
Nominal bonds are best used to mimic the components of the liability that are not inflation adjusted.
It should explain which components are inflation-adjusted and not inflation-adjusted in the text...作者: Zestt 时间: 2011-7-11 19:35
I guess it is terminology.
nominal has inflation built in, real is no inflation.
r nominal = r real + inflation.
Or (1+r nominal) = (1 + r real) * (1 + inflation)
CP作者: ll11 时间: 2011-7-11 19:35
Nominal bonds are not adjusted for inflation. Real bonds are adjusted to provide a given real return as inflation changes. Question 2 explains that real bonds are inflation-indexed.
Can't tell if this conflicts with your explanation, CP.
Jin: For question 2, the case explains that current retiree benefits will continue have the COLA feature.作者: infinitybenzo 时间: 2011-7-11 19:35
But why is the payment to retirees sensitive to CPI? Isn't the payment supposed to be fixed?
alaaq80 Wrote:
-------------------------------------------------------
> Hi , in #2, bonds that are sensitive to CPI are
> mimicked by real growth bond (unexpected
> inflation) as well as future pmts.
> in #3, bonds and future pmts not sensitive to CPI
> or equity are considered as future payments to be
> mimicked by nominal bonds. Note the similarities
> between those liabilities and nominal bonds as
> both are considering expected inflation only.
