Question

When long-term interest rates are very low, the future returns that a pension fund can earn on long-term low-risk bonds are __________ if the bonds are held to maturity; if the bonds are not held to maturity, there is ____________ potential for their prices to increase.

Answer 1

1. Low

2. Little (Not much)

Explanation:

A low intterest rates, is disastrous for pension plans.

A small decline in interest rates increases calculated pension liabilities and also reduces the funding ratio, which measures a pension provider’s ability to meet its future commitments,.