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Test 4 - Question 1

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asked Nov 1, 2016 in BUS 1003H - Introduction to Financial Risk by nduvhoM (200 points)

A life insurance company sells inflation-linked annuities. State whether the company could consider including property in its investment strategy to back these liabilities and explain why or why not.

1 Answer

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answered Nov 1, 2016 by nduvhoM (200 points)
selected Mar 1, 2017 by Rowan
Best answer

Yes it could. The main reason that property is a good match for inflation linked liabilities is because of the owner’s ability to increase rent. This means the owner can increase rent by roughly the same amount as inflation or higher.  (This question was taken directly from your course reader. The course reader elaborates more on this.)