Food Processors Inc. case Reading 20

See Food Processors Inc. case Reading 20 on book 2, page 433-444 I saw Exhibit 4 and interpreted the T-Bond total returns were dropping due to increased interest rates. Thus would have supported Food Inc. to apply a higher discount rate to its Liabilities. BUT…case points out “consensus forecast total returns for bonds are at least approx. equal to bonds’ yields” Why is the case making this point/assumption?

On the one hand their assumption of higher discount rates helps them by reducing liability values ( actuarial assumption). On the other hand increased interest rates erodes their asset values as well ( they are 1/2 invested in long term bonds). They are already underfunded by $200 million. By changing assumptions they are NOT going to generate more return. The question forces you to assume that the way yields go ( i.e. downwards ) , so goes total returns on the bonds, thus setting up the dilemma : Make the shareholder happy by changing assumptions or Be more conservative ( i.e. less aggressive ) in the face of decreased returns , thus making shareholders quite unhappy