Last edited by Kegrel
Monday, May 11, 2020 | History

2 edition of Market sensitivity to interest rate assumptions in corporate pension plans found in the catalog.

Market sensitivity to interest rate assumptions in corporate pension plans

by K. C. Chen

  • 172 Want to read
  • 8 Currently reading

Published by College of Commerce and Business Administration, University of Illinois at Urbana-Champaign in [Urbana, Ill.] .
Written in English


Edition Notes

Includes bibliographical references (p. 18-19).

StatementK. C. Chen, Stephen P. D"Arcy
SeriesBEBR faculty working paper -- no. 1071, BEBR faculty working paper -- no. 1071.
ContributionsD"Arcy, Stephen P., University of Illinois at Urbana-Champaign. College of Commerce and Business Administration
The Physical Object
Pagination19, [8] p. ;
Number of Pages19
ID Numbers
Open LibraryOL25105850M
OCLC/WorldCa742056881

  In the small plan market, we often do not need to provide financial statement accounting for our clients’ pension plans. Plan sponsors that are publicly held require financial statement accounting. In addition, private plans that require Generally Accepted Accounting Principles (GAAP) accounting, such as construction companies with bonding requirements and companies with loan covenants, will. - investing in that project or market portfolio (share of common stocks with same risk), so OCC is return shareholders could expect to earn from market portfolio. Can estimate it by looking in the past and adding 7,4 % expected risk premium to today's interest rate on Treasury bills.

Federal Funds Rate (Fed Funds Rate) - The interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks needing overnight loans to meet reserve requirements. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate, which. Funding Asset Allocation by Pension Plans’, Market Sensitivity to Alternative Pension Discount Rate Assumptions’, Size and Book to Market Factors in Earnings and Returns’, (). The Association between Stock-Price Interest Rate Sensitivity and Disclosure about Derivative Instruments’.

The feature of a bond that denotes the interest rate (coupon rate) it will pay and the date on which the interest payment will be made. Coupon payment. The actual dollar amount of interest paid to an investor. The amount is calculated by multiplying the interest rate of the bond by its face value. Coupon rate. 1 Earnings sensitivity to equity markets is defined as the impact of a 10% decline in the market value of equity funds on the net income attributed to shareholders. Earnings sensitivity to interest rates is defined as the impact of a 1% parallel decline in interest rates on the net income attributed to shareholders.


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Market sensitivity to interest rate assumptions in corporate pension plans by K. C. Chen Download PDF EPUB FB2

• Economic Assumptions Interest Rate – For pension funding, this assumption is used to discount future benefits to determine plan liabilities and it should be a reasonable expectation of the future rate of return on the pension plan’s assets.

It is often called the valuation interest rate. Different plans. Market Sensitivity to Interest Rate Assumptions in Corporate Pension Plans.

the interest rate sensitivity of stock price returns over the 4-year period before and after the announcement date. Pension Plan: A pension plan is a retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker's future benefit.

The pool of Author: Julia Kagan. Pension plans assumptions: the case of discount rate Article in Accounting Research Journal 32(2) April with 67 Reads How we measure 'reads'. The coefficient on pension sensitivity in Column (1) of Table 4 issignificantly greater than the reported by Bergstresser, Desai and Rauh for the period (6) The results from Column 1 predict that an increase in pension sensitivity from the 10th percentile to the 90th percentile will increase ERR by 59 basis points.

This document updated the guidance issued in (Principles for the management and supervision of interest rate risk) to reflect changes in market and supervisory practices to be used by institutions for identifying, measuring, managing, monitoring and controlling interest rate risk in the banking book (IRRBB).

Interest rate risk is an. Actuarial Assumption: An actuarial assumption is an estimate of an uncertain variable input into a financial model, normally for the purposes of Author: Julia Kagan.

A market model. A basic interest rate pricing model for an asset is = + + + where i n is the nominal interest rate on a given investment i r is the risk-free return to capital i* n is the nominal interest rate on a short-term risk-free liquid bond (such as U.S.

Treasury bills). Asset-liability management for defined benefit plans involves a careful balance of conflicting objectives. On one side, the year U.S. Treasury yield is currently at %, and pension plan. Positive convexity means that as yields rise, duration declines. Graphically, this is seen as a price/yield curve for which the price at very low and very high yields exceeds the price indicated by a straight, tangent line.

For an instrument with positive convexity, duration overstates the interest rate sensitivity. Given these quite different approaches to assess the liabilities of pension plans also investment strategy critical figures like the funded ratios (i.e. its value of assets divided by the value of liabilities) of a plan or its interest rate sensitivity can be quite different even for pension plans with the exact same pension promise3.

Thus, a. The assumptions underlying the efficient market hypothesis (EMH) lead its proponents to believe that stock market prices react rapidly to newly released information and, therefore, limit the ability of investor to achieve abnormal gains.

A pension consultant offering advisory services to employee benefit plans. C) Annual interest rate. This publication highlights some of the important accounting considerations related to the calculations and disclosures entities provide under U.S. GAAP1 in connection with their defined benefit pension and other postretirement benefit plans.

Many of these considerations have been included in prior Financial Reporting Alerts and are summarized below. In the current year, emerging issues and. The Right Way to Manage Your Pension Fund. by much attention to the interest sensitivity of the pension surplus, a result of FASB 87’s emphasis on defining the surplus in terms of the.

In particular, they make higher discount rate assumptions if they have higher book / market ratios, lower FX exposure, longer debt maturity and positive book equity. With regard to pension plan characteristics, there are significant relations to the realized and expected returns on plan assets, the funding level, and the investment horizon.

11Cited by: 5. Themes and implications from the Global Fixed Income, Currency & Commodities Investment Quarterly meeting. In brief. A supply shock as China shut down in response to COVID, a demand shock as quarantining began in Europe and oil prices’ collapse—all amid market and official policy volatility—have led us to raise the probability of Recession to 55% from 25%; it is our base case.

Society of Actuaries Keywords. Property of the Society of Actuaries – Not for Distribution Jun 4 • Private sector pension plans =Corporate pension plans • Product administration=Policy administration • Product development • Professional development=PD • Provision for adverse deviation •.

Lump-Sum Practice Note Released. The Academy’s Pension Committee released a new practice note, Valuing Benefits Payable as a Lump purpose of the practice note—an exposure draft of which was released last September—is to provide information to actuaries on current and emerging practices in the development of liabilities and cost estimates for pension plans, with benefits paid as a.

Pension finance is one of those seminal investment issues that have generally been dealt with by “whistling past the graveyard.” Avoidance has been driven by the magnitude of the underfunding problem, as well as the language and methodologies that have made the issue baffling to beneficiaries, funders, policymakers, and the general public.

an opportunity for plans to lower the interest rate sensitivity of their asset allocation. This paper examines whether the underlying economics of pension plans have changed due to this law - they haven’t - and whether a change in the assets’ interest rate sensitivity will materially affect expected contributions - only modestly.

Asset/liability modeling (pension) The ongoing financial crisis drove the largest corporate pension plans to a record $ billion loss of funded status in [4] In the wake of these losses, many pension plan sponsors have been led to re-examine their pension plan asset allocation strategies, to consider the risk exposures to the plans.An empirical examination of mark-to-market accounting for corporate pension plans and the possibility that high market-to-book stocks are more sensitive to also improves transparency within Lexmark’s operating results by immediately recognizing the effects of economic and interest rate trends on plan investments and assumptions in the Cited by: 2.

While we do not currently anticipate a change in our fiscal assumptions, as a sensitivity measure, a % decrease or increase in our discount rate would increase or .