ohai

In any case, real bond is better off ? right ? I am confused by Solution to CFAI 2010 Mock Exam problem 3 Part B.

wake2000

even if benfits are not indexed, but have active members, you may want to hold real return bonds for the wage inflation of the active members not the inactive members. That was on the 2010 CFAI mock.

pennyless

I agree with janakisri, but can't seem to make sense of the solution...


Solution to CFAI 2010 Mock Exam problem 3 Part B answer for CarbX Corp:

"The CarbX pension plan is frozen, so there is no need for equity. Because there is no inflation indexation, the accrued benefit liability is the ultimate liability of the plan. This liability can be mimicked entirely with nominal bonds. This is accomplished by a sale of equities and purchase of nominal bonds"

oneboy

If benefits are not inflation indexed, why would you hold real rate bonds (which are inflation indexed)?

see schweser book 2 page 55 paragraph 4