Spoiler...Question 4-C 2006 CFA Exam

For the Sponsor (ACL) and pension fund (ACLP) common risk exposures, I had decreases which is fine, but my reason was that the correlation between company financial results and pension plan returns was high. Think that would score me marks??

I would guess some, but that isn’t really the problem. The problem is that returns are likely to be down at the same time the company can’t fund the plan, leading to higher surplus volatility. So instead of a hedge it is like they are levered.

Right, but the question is…indicate whether each of the following factors increases, leaves unchanged, or decreases ALCP’s…damn…right there, ALCP’s risk, not ALC’s risk. Read the question Babbu. Again.