IBM pension fund owns a portfolio consisting of the common stock of a large number of companies. Suppose the pension fund knows that two months from now it must sell stock in its portfolio to pay beneficiaries $20 million. The risk that IBM pension fund faces is that two months from now when the stocks are sold, the price of most or all stocks may be higher than they are today.

Question

Quizplus · Accepted Answer

The risk the IBM pension fund faces is that the price of the stocks may be lower than they are today, not higher, which would mean they might not be able to sell the stocks for enough money to meet the $20 million obligation.

IBM Pension Fund Owns a Portfolio Consisting of the Common