Exhibit 1 - Should the last row “Future Real Wage Growth” be mimicked using Real Bonds + Equities or Nominal Bonds + Equities?
Future Real Wage Growth = 50% Domestic Equities + 50% Real Bonds.
^ That’s exactly what I also though, but somehow they have assumed the Liability mimicking portfolio is = 50% Equities and 50% Nominal Bonds!
For Future real wage growth combination of nominal bonds and equities is used as benchmark.
I guess because the equities keep up with inflation?
Yeps, makes sense. Thanks
Real wage growth => Economic growth => Equities
future wage growth: equity+nominal
future wage inflation: real+nominal
Same Ques Part 6 Pg 505
Why A and not C?
how do we know the returns from asset only approach will be greater the return from the return-generating portfolio?
Or we rejected C, because it mentions usage of derivatives for only extreme market movements?
read P No 499