# Sample exam 3 question 11

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.

I gave up on learning that question

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,

thanks for sharing

you just need to know what unfunded liability mean.

And that you work backwards with cash flow matching.

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

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.

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

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

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

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 …