Hi everyone,
I’m struggling to understand why statement B is incorrect.
Can anyone help explain why?
Thanks!
C is the correct answer.
Why should B be the ‘most appropriate’ answer? Current asset allocation and Option 1 for defined benefit plan shows 10% allocation to real estate. So, there is no change in real estate allocation.
Questions does not clearly mention the benefit out of land. But, it clearly says that 30% of the income is from Africa. So, when African equity is in bad shape, asset under pension plan will be of lower value. To fill the gap, company would require to add funds into pension plan. And, they will not be able to do so because African economy will be in bad shape too and company’s income may be negative.
This question seems like it is from Fixed Income but it is actually using the concept from Portfolio Management and Private Wealth Management. .
Thank you for the clear response!
The reason they gave in the answer for it not being B is rather confusing, i would have never thought about the extended balance sheet for the SPP but as it says “most correct” then obviously the 20% allocation to EM which has 60% of the company revenues attached to is a greater risk to the pension plan of both the plan and company not doing well at the same time so hence less contributions.