How would one solve this question:
What is the required rate fo return for a DB pension plan assuming a discount rate to value liabilities of 5 percent, inlfation of 2 percent and 0.3 percent investment management costs?
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How would one solve this question:
What is the required rate fo return for a DB pension plan assuming a discount rate to value liabilities of 5 percent, inlfation of 2 percent and 0.3 percent investment management costs?
Studying With
*of
Budd Foxx
Studying With
*of
Budd Foxx
.
5?
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You must be the square root of two cause i feel irrational around you
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5.3 ; 7.3 if inflation is needed to be earned.
DB plan normally doesnt state to keep the real value of the portfolio, the assets arent meant to live indefineitely. Unless, explicitly stated, but I dont think Ive ever seen a DB plan where they wanted to maintain the real value of the assets like an endownment or foundation.
5.3 for DB plan
If it were an endownment it’d be 7.3
was mgmt fee on both versions of exams?
if benefits are indexed to inflation, then the returnw ould need to include the rate of inflation.
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If benifit are indexed to inflation, in should be corporated in discount rate. In this case is 5% included
Does anyone remember if the discount rate was nominal or real, becasue if it was real, then we need to incorporate inflation. Else if its nominal discount rate…. See Question 3 2008.
I dont remember it being on the version i took, it had inf and disc rate only :/ …
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that depends if it’s real or nominal. if you’re referring to the exam, then i don’t know, because we’re not supposed to discuss it. OP, is it real or nominal? if nominal, then the inflation rate is just to mess with you.
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a
^ same here, i just used the dis rate and didnt include inflation but i dont recall ANY fee..
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i think some of you guys are confusing individual IPS with institutional IPS
band 10, here i come
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I also used the discount rate and left out inflation. I didn’t have management fees either. 7071
so…5% right?
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You must be the square root of two cause i feel irrational around you
http://alphahive.wordpress.com/
^ that’s what i did.. when I left the exam everyone was saying its 7. something im not sure but I was kind of sure that it is 5 only.. its not a found or end.. im not sure.. anyone?
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In the example referred to here it explicitly states the discount rate includes a component for expected inflation, how nice they were back then…..
not if its real kid cudi
Went with SQRT(25) here as the RRR
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The study text on return requirements of DB plans goes that MINIMUM rate the plan must earn on its assets is at least to be the actuary discount rate. The return requirement of the plan should include all charges above the rate. Because the actuary rate does not include the charges the plan will incur on the assets.
Given the discount rate did not state that inflation was included, I think it is safer to add inflation. Also add MGMT fees too.
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+1
i must have been blind, i didnt see mgmt fees either. were they buried in the text somewhere?
band 10, here i come
^ must have been blind too .. low probability to have a lot of blind people not seeing management fees.. high probability of having different versions of exams.. who knows :)..
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I recall the question said “show your calculation”. Would the CFAI do that of it was just the 5%?
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Another hint that you had to make some exercise with the figures. If you were to put just 5% in the answerbook, it is hardly to be considered as “calculation”, isn’t? Thus, in order to make the calculation you needed to show a manupulation with those three figures.
^interesting
Since …. then x% is the req rate of return.
I think this is fine. But i barely had time to even THINK of their question format lol i just answer and move forward and STILL i left question 9 untounched!
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