A fully-funded pension plan can invest surplus assets in equities provided it reduces the proportion in equities when the value of the fund drops near the accumulated benefit obligation.This strategy is referred to as
A)immunization.
B)hedging.
C)diversification.
D)contingent immunization.

Question

Quizplus · Accepted Answer

This strategy is known as "contingent immunization," which involves investing in equities when the market is doing well and reducing exposure to equities when the market drops, to ensure that the fund can meet its accumulated benefit obligation. This approach balances the desire for higher returns with the need to protect the pension fund from risk. Immunization is a different investment strategy that involves matching the duration of assets and liabilities to reduce interest rate risk. Hedging involves using financial instruments to offset potential losses. Diversification involves investing in a variety of assets to reduce overall risk.

A Fully-Funded Pension Plan Can Invest Surplus Assets in Equities