Question

In: Accounting

Why would Category 1 assets be used to fund a pension plan?

Why would Category 1 assets be used to fund a pension plan?

Solutions

Expert Solution

Category 1 assets or Level 1 assets means listed stocks, bonds or any other assets that have a mark to market mechanism for setting a fair market value. So, it is clear that category 1 assets has only a minimum effect of time value of money.

Pension plan is a retairment plan where the employer pools a sum of money (a contribution may be collected from employee) for the future benefits of the employee. Contribution from the part of employer as well as the employee is accumulated and disbursed periodically after the retairement of the employee.

It is clear that a pension plan involves pooling of money to disburse in future. Since there is a significant time gap between this activities, the time value of money becomes a major concern. The contribution provided to pension plan during the employment of the worker should give a fair value even after the retirement of the employee. This is why category 1 assets are used to fund pension plan.

ekkarill92 answered 11 months ago
Next > < Previous

Related Solutions

1. A pension fund manager is considering three assets. The first is a stock fund, the...
1. A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.05. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.19 0.25 Bond fund 0.09 0.13 The correlation between the fund returns is 0.17. An investor has a risk-aversion of 8. In her optimal complete portfolio (including stocks, bonds, and risk-free...
4. Unlike defined-benefit pension plan assets, defined-contribution pension plan assets: A. are held by the individual...
4. Unlike defined-benefit pension plan assets, defined-contribution pension plan assets: A. are held by the individual participants in income-producing investment accounts. B. are reported in the sponsoring company’s financial statements. C. must be invested entirely in the sponsoring company’s securities. D. All of the above are true. E. None of the above is true.
How is the pension expense influenced by changes in the pension liability and plan assets?
How is the pension expense influenced by changes in the pension liability and plan assets?
A pension fund manager is considering three assets. The first is a stock fund, the second...
A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.07. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.18 0.29 Bond fund 0.11 0.11 The correlation between the fund returns is 0.5. What is the weight of stock fund in the optimal risky portfolio? Round your answer to 4 decimal...
A pension fund manager is considering three assets. The first is a stock fund, the second...
A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.06. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.18 0.3 Bond fund 0.12 0.14 The correlation between the fund returns is 0.2. What is the expected return of the optimal risky portfolio? Round your answer to 4 decimal places. For...
A pension fund manager is considering three assets. The first is a stock fund, the second...
A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.05. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.20 0.29 Bond fund 0.11 0.15 The correlation between the fund returns is 0.4. What is the expected return of the optimal risky portfolio?
A pension fund manager is considering three assets. The first is a stock fund, the second...
A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 8%. The probability distribution of the risky funds is as follows: E[r] std. dev. Stock fund 20% 30% Bond fund 12% 15% The correlation between the fund returns is 0.10. What is the investment proportion in the minimum variance portfolio of stock fund? With the same set of assets...
A pension fund manager is considering three assets. The first is a stock fund, the second...
A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 8%. The probability distribution of the risky funds is as follows: E[r] std. dev. Stock fund 20% 30% Bond fund 12% 15% The correlation between the fund returns is 0.10. A) What is the investment proportion in the minimum variance portfolio of stock fund? B) Solve numerically for the...
A pension fund manager is considering three assets. The first is a stock fund, the second...
A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 8%. The probability distribution of the risky funds is as follows: E[r] std. dev. Stock fund 20% 30% Bond fund 12% 15% The correlation between the fund returns is 0.10. What is the investment proportion in the minimum variance portfolio of stock fund? With the same set of assets...
15. The city of Utica has a defined benefit pension plan. The assets of the plan...
15. The city of Utica has a defined benefit pension plan. The assets of the plan have a value of $10 million. An actuary reports that in future, years, the city will have to pay a total of $26 million to its workforce. Of the $26 million, $15 million relates to the work they have already done, and another $10 million will relate to work they will do between now and retirement. The present value of the total $25 million...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT