After reading the Novy-Marz and Rauh paper you decide to compute the total obligation of the state

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After reading the Novy-Marz and Rauh paper you decide to compute the total obligation of the state that you live in. After some research you determine that your state's promised pension payments amount to $1 billion dollars annually, and you expect this obligation to grow at 2% per year. You determine that the riskiness of this obligation is the same as the riskiness of the state's debt. Based on the pricing of that debt you determine that the correct discount rate for the fund's liabilities is 3% per annum. Currently, based on actuarial calculations using 8% as the discount rate, the plan is neither over nor underfunded -the value of the liabilities exactly matches the value of the assets. What is the extent of the true unfunded liability?
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Corporate Finance

ISBN: 978-0134083278

4th edition

Authors: Jonathan Berk, Peter DeMarzo

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