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FIN 424 Saudi Electronic University Worden Technology Inc Policy Statement Paper

FIN 424 Saudi Electronic University Worden Technology Inc Policy Statement Paper

Read through following scenario and identify which Policy statement X or Y contains the appropriate language for each of the components listed in 1-4 below, Justify your choice in each instance.

Worden Technology, Inc.

Based in London, Worden Technology, Inc. is an established company with operations in North America, Japan, and several European countries. The firm has £16 billion in total assets and offers its employees a defined-benefit pension plan.

EXHIBIT 3-1Investment Policy Statement


investment policy statement X

investment policy statement Y


Return requirement

Plan’s objective is to outperform the relevant benchmark return by a substantial margin.

Plan’s objective is to match relevant benchmark return.


Risk tolerance

Plan has a high-risk tolerance because of the long-term nature of the plan and its liabilities.

Plan has a low risk tolerance because of its limited ability to assume substantial risk.


Time horizon

Plan has a very long-time horizon because of its infinite life.

Plan has a shorter time horizon than in the past because of plan demographics.


Liquidity requirement#

Plan has moderate liquidity needs to fund monthly benefit payments.

Plan has minimal liquidity needs.

# Assume Worden will not contribute to its Pension Plan over the next several years.

Worden’s pension plan currently has assets of £8.88 billion and liabilities of £9.85 billion. The plan’s goals include achieving a minimum expected return of 8.4 percent with expected standard deviation of return no greater than 16 percent. Next month, Worden will reduce the retirement age requirement for full benefits from 60 years to 55 years. The median age of Worden Technology’s workforce is 49 years.

Angus Williamson, CFA, manages the pension plan’s investment policy and strategic asset allocation decisions. He has heard an ongoing debate within Worden Technology about the pension pian’s investment policy statement (IPS). Exhibit 3-1 compares two investment policy statements (IPSs) under consideration.

Identify which investment policy statement, X or Y, contains the appropriate language for each of the following components of Worden Technology’s pension plan:

(A) Return Requirement

(B) Risk Tolerance

(C) Time Horizon

(D) Liquidity

Justify your Choice in each instance. 150 to 250 words per part (parts A, B, C and D)

No plagiarism allowed

question is also attached

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