Came across a question from IFT requiring to calculate PBO then find effective duration of DB liabilities. I’m wondering if we would need to know how to calculate PBO since I haven’t seen a question like this (I’ve done Kaplan and CFAI questions).
Pbo calculation is a legit quest and is explained in the text, FI liabilities section, with a formula and example.
PBO = (m x G x W0 x (1+w)T) / (1+r)T X (1/r - 1/(r(1+r)Z) x # of employees
Low probability of showing up
Agreed!
But in L1 and L2, I’ve seen a few odd-ball questions like this that is meant to have 80% of the takers miss the question!
Also, generally its good to know that that formula, the 2nd part of the equation is for life expectancy, the first part is for ABO, and the wage increase is for the PBO… a breakdown of the equation could be a question… or a relational… what happens if w (wage growth) increases, what happens if r (discount rate) decreases, etc.