I have a 2 part finance-theory question I was hoping to collectively source here. It is has 2 parts:
a. Can a fund, such as a pension plan, immunize a portfolio using dividend yield rather than bond yields as is traditionally done? Why/ Why not? What would be the risks from this?
b. Can a fund, such as a pension plan, use dividend yield as a measure to hit their actuarial rate of return? Why / Why not? What would be the risks from this?
Overall I'm trying to get a deeper understanding of the differences between the cash-flows from bonds and stocks and how they could be use to either immunize or (to a high degree of accuracy) hit the actuarial rate of return assumptions on a fund. Ie: if you have a 6% actuarial rate of return, could you create a portfolio of dividend yielding stocks with a collective yield of 6% to effectively ensure your actuarial rate of return is hit?
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