If the funding gap of a defined benefit pensionplan increases, what happens to the funding ratio?
Answer to relevant QuestionsWhat are the risks associated with fundinggap risk? “By hedging a defined benefit pension plan’sinterest-rate risk, a sponsor can eliminate pensionrisk.” Comment on this statement. What is meant by immunizing a bond portfolio? Why does the arithmetic average monthly rate of return diverge more from the time-weighted monthly rate of return for manager II than for manager I in Question 2? Explain how the shape of the yield curve influences the theoretical price of a Treasury bond futures contract.
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