Answer-first summary for fast verification
Answer: USD -133.4 million
The correct answer is A, which represents a decrease in the pension fund's surplus by USD 133.4 million over the one-year period. The calculation is based on the initial surplus at the end of 2017 and the changes in asset and liability values by the end of 2018. The initial surplus (So) was calculated as the difference between the initial assets (Ao) and initial liabilities (Lo), which was USD 390 million (So = Ao - Lo = 840 - 450). By the end of 2018, the assets decreased by 14.0%, resulting in new assets (A1) valued at USD 722.4 million (A1 = (1 - 0.14) * 840). The liabilities increased by 3.5%, leading to new liabilities (L1) valued at USD 465.75 million (L1 = (1 + 0.035) * 450). The ending surplus for 2018 (S1) was then calculated by subtracting the new liabilities from the new assets, resulting in a surplus of USD 256.65 million (S1 = A1 - L1 = 722.40 - 465.75). The change in surplus for 2018 (△S) is the difference between the ending surplus of 2018 and the initial surplus of 2017, which is a decrease of USD 133.35 million (△S = S1 - So = 256.65 - 390). This confirms that option A is correct, indicating a decrease in surplus by approximately USD 133.4 million.
Author: LeetQuiz Editorial Team
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During the year, how did the surplus of the US pension fund change, considering that at the end of 2017, it had assets valued at USD 840 million and liabilities valued at USD 450 million? The assets were fully invested in equities and commodities, while the liabilities were exclusively in fixed-income instruments. By the end of 2018, the value of the assets decreased by 14.0%, and the value of the liabilities increased by 3.5%. No changes were made to the asset and liability allocations throughout the year.
A
USD -133.4 million
B
USD -117.6 million
C
USD 256.7 million
D
USD 390.0 million
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