Liabilities associated with active employees aged 50

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liabilities associated with active employees aged 50 various mortality, termination, and benefit assumptions must be reviewed periodically terminated vested participants former employees who are vested in the pension plan and are entitled to benefit payouts commencing sometime in the future Notes by Prof. K.S. Tan/Actsc 445/845 Chapter 45: Dedicated Bond Portfolios – p. 4/1
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Schedule of Expected Benefit Payouts (Table 48-1) Retired lives liabilities plus Retired lives liabilities Terminated vested Year Dollar Payout Dollar Payout 1992 1,250,000 2,000,000 1993 15,000,000 24,000,000 1994 14,916,015 24,519,000 1995 13,445,985 25,021,000 . . . . . . . . . 2027 2,123,504 10,982,000 2028 1,337,297 9,869,000 Total 283,758,000 Notes by Prof. K.S. Tan/Actsc 445/845 Chapter 45: Dedicated Bond Portfolios – p. 5/1
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Setting Portfolio Constraints (Table 48-2) Minimum Maximum Quality (Credit Rating) Treasury 20% 100% AAA 0 100% . . . . . . . . . Sector Treasury 20% 100% Industrial 0 30% . . . . . . . . . Concentration Max. in one issue 10% Min. in one issuer 10% Call Constraints on Corporate Securities Noncallable only Lot Size Conditional minimum $2,000,000 (par) Increment $1,000,000 (par) Maximum Unlimited Notes by Prof. K.S. Tan/Actsc 445/845 Chapter 45: Dedicated Bond Portfolios – p. 6/1
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Reinvestment Rate & Optimal Dedicated Portfolio Reinvestment Rate Aggressive vs. Conservative Selecting the Optimal Portfolio as an optimization problem (least cost portfolio) must avoid questionable credits also avoid issues that may be called prior to maturity, have large sinking-fund call risk, or have significant prepayment risk Table 48-3 Par S&P Security Coupon Maturity Price Yield Duration M.V.
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