please provide the solutions for the question below

1. Angus Walker, CFA, is reviewing the defined benefit pension plan of Acme Industries. Based in London, Acme has operations in North America, Japan, and several European countries. Next month, the retirement age for full benefits under the plan will be lowered from age 60 to age 55. The median age of Acme's workforce is 49 years. Walker is responsible for the pension plan's investment policy and strategic asset allocation decisions. The goals of the plan include achiev- ing a minimum expected return of 8.4% with expected standard deviation no greater than 16.0%. Walker is evaluating the current asset allocation (Table 28A) and selected financial informa- tion for the company (Table 28B). There is an ongoing debate within Acme Industries about the pension plan's investment policy statement (IPS). Two investment policy statements under con- sideration are shown in Table 28C. 10% International Equities (MSCI World, excluding U.K.) U.K. bonds U.K. small capitalization equities U.K. large capitalization equities Cash 42 13 30 5 Table 28A Acme pension plan: Current asset allocation 958 PART VIL Applied Portfolio Management Acme Industries total assets 16,000 Pension plan data: Plan assets 6,040 Plan liabilities 9,850 Table 28B Acme Industries selected financial information (in millions) IPS X IPS Y Return requirement Plan's objective is to match the relevant benchmark return. Plan's objective is to outperform the relevant benchmark return by a substantial margin. Plan has a high risk tolerance because of the long-term nature of the plan and its liabilities. Risk tolerance Time horizon Plan has a very long time horizon because of the plan's infinite life. Plan has a low risk tolerance because of its limited ability to assume sub- stantial risk. Plan has a shorter time horizon than in the past because of plan demographics. Plan has minimal liquidity needs. Liquidity Plan needs moderate level of liquidity to fund monthly benefit payments. Table 28C Investment policy statements a. Determine, for each of the following components, whether IPS X or IPS Y (see Table 28C) has the appropriate language for the pension plan of Acme Industries. Justify each response with one reason. i. Return requirement ii. Risk tolerance iii. Time horizon iv. Liquidity Note: Some components of IPS X may be appropriate, while other components of IPS Y may be appropriate. b. To assist Walker, Acme has hired two pension consultants, Lucy Graham and Robert Michael. Graham believes that the pension fund must be invested to reflect a low risk tolerance, but Michael believes the pension fund must be invested to achieve the highest possible returns. The fund's current asset allocation and the allocations recommended by Graham and Michael are shown in Table 28D. Select which of the three asset allocations in Table 28D is most appropriate for Acme's pension plan. Explain how your selection meets each of the following objectives or constraints for the plan: i. Return requirement ii. Risk tolerance iii. Liquidity Current Graham Michael 30% 20% 40% 13 8 20 U.K. large capitalization equities U.K. small capitalization equities International equities (MSCI World ex-U.K.) U.K. bonds Cash 10 10 18 42 52 17 5 10 5 100% 100 % Total 100% 100% 100% 8.2% Expected portfolio return Expected portfolio volatility (standard deviation) 9.1% 16.1% 10.6% 21.1% 12.8% Table 28D Asset allocations (in %)