Chapter 26: Pension Fund Operations
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1. Pension funds whose contributions are dictated by the benefits that will eventually be provided are called ____ plans.
a.
defined-benefit
b.
defined-contribution
c.
beneficiary
d.
guarantor-insured
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
2. A pension plan that provides benefits that are determined by the accumulated contributions and return on the fund’s
investment performance is called a ____ plan.
a.
defined-benefit
b.
defined-contribution
c.
beneficiary
d.
guarantor-insured
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
3. A ____ plan allows a firm to know with certainty the amount of funds to contribute. The ____ plan allows a firm to
know with certainty the amount of benefits that must be provided.
a.
b.
c.
d.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
4. If pension fund investment decisions are made with the objective of generating cash flows at the same time as planned
outflow payments, the fund follows a ____ strategy. When comparing matched funding and projective funding, ____ is
more flexible for portfolio managers.
a.
matched funding; matched funding
b.
projective funding; matched funding
c.
projective funding; projective funding
d.
matched funding; projective funding
Chapter 26: Pension Fund Operations
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ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
5. Pension funds managed by life insurance companies are normally referred to as
a.
trust portfolios.
b.
insured plans.
c.
matched plans.
d.
projective plans.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
6. The asset composition of private pension portfolios is most heavily concentrated in
a.
corporate bonds.
b.
mortgages.
c.
common stock.
d.
money market securities.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.25.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
7. Investing in a bond index portfolio is an example of a(n) ____ approach. Investing in an equity portfolio that mirrors
the stock market is an example of a(n) ____ approach.
a.
passive; active
b.
active; active
c.
active; passive
d.
passive; passive
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
8. Pension funds managed by life insurance companies concentrate on
Chapter 26: Pension Fund Operations
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a.
common stock.
b.
bonds and mortgages.
c.
preferred stock.
d.
money market instruments.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
9. To reduce interest rate risk, pension fund managers can
a.
shift from variable-rate to fixed-rate bonds.
b.
increase the average maturity on fixed-rate bonds.
c.
sell bond futures contracts.
d.
reduce the investment in money market securities.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
10. Most pension fund contributions are contributed by the
a.
employer.
b.
employee.
c.
state government.
d.
federal government.
e.
none of the above
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.25.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
11. Public pension funds can be classified by the manner in which contributions are received and benefits are paid.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
Chapter 26: Pension Fund Operations
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Page 5
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.25.08
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
17. With a ____ funding strategy, investment decisions are made with the objective of generating cash flows that match
planned outflow payments.
a.
matched
b.
mixed
c.
projective
d.
none of the above
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
18. Underfunded pensions are primarily a problem with defined-contribution pension plans.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.25.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
19. The government agency that guarantees that participants in defined-benefit plans will receive their benefits upon
retirement is the:
a.
Federal Pension Insurance Corporation.
b.
Pension Benefit Guaranty Corporation.
c.
Office of Pension Insurance.
d.
Employee Pension Protection Bureau.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.25.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge