ruchita

ok so, let’s assume the pension asset allocation changed by allocating more to bonds.
now, you have to match risk exposure in the capital structure - so option B will occur.
now, we know the total value of firm remains the same, but reallocation must be done to match risk of assets…, so equity capital and liability will change without affecting total value. - so option C will occur.
now, since asset allocation has changed, asset risk will also change. Couple this with option B will affect the risk of the equity. This should result in changes in the equity beta even though total value of firm remains the same. - so option A will occur. No?
Where am I going wrong here?