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a) A retirement pension is to be funded by a portfolio of assets the return of which follows a normal distribution with an annual mean
a) A retirement pension is to be funded by a portfolio of assets the return of which follows a normal distribution with an annual mean and standard deviation of 6% and 12% respectively. It is assumed that no sale of assets is required to pay for the pensions. How likely will next year's funding be met by asset's return if the next year's pension equals 4% of the assets? What is the probability if the funding is met in terms of average asset return over 20 years? (10 marks) b) Briefly discuss whether time diversification is a fallacy or not. (6 marks)
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