1. A defined benefit plan has 300 employees with a majority of them under age 50. The pension fund manager has collected the following data:

   Risk-free rate 2.15%

   S&P 500 return (5-year average) 10.42%

   Expected inflation rate 1.80%

   Discount rate used to compute pension obligation 6.85%

   Yield to maturity on the company 20-year bonds 5.75%

   The return objective for the pension fund is closest to:

   		a. 2.52%.
   		b. 8.65%.
   		c. 10.80%.
   		d. 12.22%.