The AT&T pension fund reports total assets worth $19.6 billion and liabilities of $17.4 billion. Assume the surplus has a normal distribution and volatility of l0% per annum. The 95% surplus at risk over the next year is
A. $360 mil1ion
B. $513 million
C. $2,860 million
D. $3,220 million
Answer:A
The fund's surplus is the excess of assets over liabilities, which is $19.6 - $17.4 =$2.2 billion. The
surplus at risk at the 95% level over one year is, assuming a norrnal distribution, 1.645 10% $2,200 = $360 million. Answer B) is incorrect b ecause it uses a 99% confidence level. Answers C) and D) are incorrect because they apply the risk to the liabilities and assets instead of the surplus.