WACC after adjusting for Pension A/L

CFA Level III
#1

When adjusting the WACC to account for pension assets and liabilities, CFAI makes the assumption that the pension liabilities has a beta of 0 meaning that their returns are not correlated at all with the general market. However, in the previous reading, when it deconstructs the pension liabilities in order to determine the types of assets that would best mimic them, the real wage growth is implicitly tied to returns on equities (which should have a beta of 1), meaning that the overall beta of pension liabilities should be greater than 0 (using a weighted average of the liability components) Is the beta assumption of 0 just for simplification purposes? Best, TheChad

#2

You are overanalysing

#3

derswap07 Wrote: ------------------------------------------------------- > You are overanalysing I figured as much…hence the question of: "Is the beta assumption of 0 just for simplification purposes? " Best, TheChad

#4

Here, the pension liabilities are taken as a debt. That’s why beta is zero.