Sample exam 3 question 11

CFA Level III
#1

Can someone explain why the unfunded liability in Year 3 would be 1280000-180000? Should it be 1280000 (year 3 liability) + 180000 (1680000-1500000)? Thanks.

#2

I gave up on learning that question

#3

actually I got it now, The question asked for unfunded liability at year 2. At year 4, the liability is 1680000, which can be met by Bond C (1500000+its coupon payment of 180000) 1500000 + 180000 = 1680000, so year 4 liability is fully met. At year 3, the liability is 1280000. As coupon pmt from Bond C is 180000, the unfunded liability is now 1280000 - 180000 = 1100000. year 3 liability can be funded by bond D (coupon) At year 2, the liability is 1198000. the coupon payment from bond C and bond D is 180000 and 100000 respectively, so the unfunded liability is 1198000-180000-100000=918000! Year 2 liability can be funded by Bond A. At year 1, the liability is 1043500, the coupon payment from Bond C, D and A is 180000+100000+68000, so the unfunded liability is 1043500-180000-100000-68000=695500, Year 1 liability can be funded by Bond B,

#4

thanks for sharing

#5

you just need to know what unfunded liability mean.

#6

And that you work backwards with cash flow matching.

#7

comp_sci_kid Wrote: ------------------------------------------------------- > you just need to know what unfunded liability > mean. what is it ? i did just the mock… definition pls in case it pops up

#8

There was way too much work to do on that question. I know what cash flow matching is and how to do it but if it shows up as a 3-pt question, I will skip it until I have done everything else I know how to do.

#9

Any one can tell me what is unfunded liability? I knew cash flow matching but did not understand the unfunded liability.

#10

lilylily Wrote: ------------------------------------------------------- > Any one can tell me what is unfunded liability? > > I knew cash flow matching but did not understand > the unfunded liability. it is what is left after coupons from OTHER BONDS (not the bond designated to fund this liability) are substracted

#11

Got it. Thanks comp_sci_kid Wrote: ------------------------------------------------------- > lilylily Wrote: > -------------------------------------------------- > ----- > > Any one can tell me what is unfunded liability? > > > > I knew cash flow matching but did not > understand > > the unfunded liability. > > > it is what is left after coupons from OTHER BONDS > (not the bond designated to fund this liability) > are substracted

#12

this term is so non standard, now who will do something like this, just put all the data in and solve the linear programming problem, this terminology is method-dependent …