Pension Funds - 1427 Words
While pension funds hold bonds as their asset, they also have obligations as liability. Lower interest rate, namely a lower discount rate, on one hand, increases bonds’ return, on the other hand, it also increase pension funds’ liabilities, which is the discounted value of future obligations. Moreover, bonds in asset side are usually in shorter term than long-term liabilities, and therefore are less sensitive to interest rate change. As a result, the increase in liability exceeds the value...
1,427 Words | 4 Pages