Name:
Class:
Date:
chapter 26
Indicate whether the statement is true or false.
1. Taking speculative positions in stock options is generally not considered appropriate for retirement funds because of the
high degree of risk involved.
a. True
b. False
2. The composition of the stocks in a pension fund’s portfolio is determined by the fund’s portfolio managers.
a. True
b. False
3. Projective funding limits the manager’s discretion, allowing only investments that match future payouts.
a. True
b. False
4. A pension fund manager might hedge against interest rate movements by selling bond futures contracts.
a. True
b. False
5. Underfunded pension plans are primarily a problem with defined-contribution pension plans.
a. True
b. False
6. A defined-benefit plan provides benefits that are determined by the accumulated contributions and the fund’s
investment performance.
a. True
b. False
7. In recent years, defined-contribution plans have commonly been replaced by defined-benefit plans.
a. True
b. False
8. Nonqualified private pension plans offer tax deferral benefits to employees, but with qualified plans, income is taxed
before it is contributed to the plan.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
9. The asset composition of private pension portfolios is most heavily concentrated in
a. corporate bonds.
b. mortgages.
c. common stock.
d. money market securities.
Name:
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chapter 26
10. 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
11. A ____ plan allows a firm to know with certainty the amount of funds to contribute. A ____ plan allows a firm to
know with certainty the amount of benefits that must be provided.
a. defined-benefit; defined-benefit
b. defined-contribution; defined-contribution
c. defined-contribution; defined-benefit
d. defined-benefit; defined-contribution
12. To deal with the problem of underfunded pension plans, Congress passed the ____________ of 2006.
a. Pension Protection Act
b. Employee Retirement Income Security Act
c. Retirement Reform Act
d. Pension Benefit Guaranty Corporation Act
13. 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
14. 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.
15. 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
16. Pension funds managed by life insurance companies concentrate on
a. common stock.
b. bonds and mortgages.
c. preferred stock.
d. money market instruments.
Name:
Class:
Date:
chapter 26
17. 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
18. Pension funds managed by life insurance companies are normally referred to as
a. trust portfolios.
b. insured plans.
c. matched plans.
d. projective plans.
19. 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.
20. 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 these are correct.
Name:
Class:
Date:
chapter 26
Answer Key