Please refer to Question 3 on P432 in Volume 2. (Q3 of EOC questions in Reading 20) 1-What is liability duration? I thought that liability duration was an indicator of the maturity of a plans liabilities. How can gwartney have a liability duration of only 10 years and at the same time have a young workforce? 2- Can someone please explain question 1 to me. The explanation is still confusing.
duration I believe is used in the sense of cash flows * avg length. Kind of like in a Modified Duration sense of the term in Fixed Income. which part of question 1 (I believe you are talking about the Worden Technology Inc) confuses you?
Sorry, I meant question question 3A of gwartney international. I’m still struggling with this one
surplus=assets - liabilities assets have gone up 10% (9% return objective + 100 bps more). liabilities have increased by 12% - so liabilitiies increase > assets increase. so assets - liabilities would go up more. given 298$ = liabs, assets=300$ surplus=300-298=2 liabs become 298*1.12=333.76 assets became 300*1.1=330 so assets - liabs = surplus=330-333.76 = -3.76
thanks