CFA Level I · CFA Level I Exam · Basics of Portfolio Planning and Construction
A pension plan has liabilities with a present value of 800 million and assets of 880 million. In a liability-relative approach to strategic asset allocation, the plan's funded ratio is closest to:
The funded ratio is assets divided by the present value of liabilities: 880 million divided by 800 million equals 1.10. The plan is overfunded by 10%, and the ratio is used to frame liability-relative allocation. Inverting the ratio would give 0.91, which is incorrect.
- A0.91
- B1.10Correct
- C1.25
Explanation
Funded ratio = assets / liabilities = 880 / 800 = 1.10. The 0.91 option inverts the ratio (800/880). The 1.25 option is not derived from the data.
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