Question 1

In making their investment decisions, life insurers pursue:

Accepted Answer

A)  Maximum rate of return, regardless of the nature of the investment 
B)  Short-term investments which roll over into cash rapidly 
C)  Long-term investments promising income certainty and safety of principal 
D)  A and C above 
E)  None of the above 
A)  Maximum rate of return, regardless of the nature of the investment 
B)  Short-term investments which roll over into cash rapidly 
C)  Long-term investments promising income certainty and safety of principal 
D)  A and C above 
E)  None of the above

Question 2

One area of growing insurance needs, according to the text, is small businesses.

Accepted Answer

A) True 
 B)False

Question 3

Interest income and capital gains are federal tax-exempt for pension funds.

Accepted Answer

A) True 
 B)False

Question 4

By purchasing shares in an investment company small investors can get greater price stability and reduced risk in their investments.

Accepted Answer

A) True 
 B)False

Question 5

As investors, pension funds:

Accepted Answer

A)  Are long-term investors 
B)  Need more liquidity than most other investors 
C)  Need the highest available income 
D)  Are interested in generating current cash flow 
E)  None of the above are correct 
A)  Are long-term investors 
B)  Need more liquidity than most other investors 
C)  Need the highest available income 
D)  Are interested in generating current cash flow 
E)  None of the above are correct

Question 6

GICs have helped to reduce insurance company risk in recent years by stabilizing their sources of funds and lowering the average cost of life insurance company funding.

Accepted Answer

A) True 
 B)False

Question 7

Loans to policyholders further increase the stability of cash flows for the insurance industry.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following institutions is often called the "department store of consumer and business credit?"

Accepted Answer

A)  Commercial banks 
B)  Investment companies 
C)  Finance companies 
D)  Life insurance companies 
E)  Property-casualty insurance companies 
A)  Commercial banks 
B)  Investment companies 
C)  Finance companies 
D)  Life insurance companies 
E)  Property-casualty insurance companies

Question 9

The gap between what Penny Benny has promised to payout to pension plan members and its available assets has widened significantly, in 2005 exceeding:

Accepted Answer

A)  $15 billion 
B)  $23 billion 
C)  $30 billion 
D)  $32 billion 
E)  None of the above 
A)  $15 billion 
B)  $23 billion 
C)  $30 billion 
D)  $32 billion 
E)  None of the above

Question 10

The principal asset held by state and local government employee retirement funds is corporate bonds.

Accepted Answer

A) True 
 B)False

Question 11

A symbiotic is a conglomerate financial firm that offers a variety of financial services under one roof.

Accepted Answer

A) True 
 B)False

Question 12

Cash balance pension funds tend to favor young workers, while they may actually reduce older workers benefits.

Accepted Answer

A) True 
 B)False

Question 13

You are examining the profitability of five different financial institutions as measured by their ROE (return on equity capital) and ROA (return on assets). The table below reports the ROE and ROA for each of these five institutions. Using the data below can you determine what proportion of each institution's total assets are financed by equity (owners') capital and what proportion are financed by debt?
   Recall: ROE = Net after-tax income/Total equity capital and ROA = Net after-tax income/Total assets

Accepted Answer

A: ROE = 15% and ROA = 1.25 %, solve for

Question 14

Most finance companies are heavy users of debt in financing their operations.

Accepted Answer

A) True 
 B)False

Question 15

The gradual aging of the general population in the U.S. and several other nations tends to accelerate the growth of pension funds.

Accepted Answer

A) True 
 B)False

Question 16

Because of the aging of the population, pension fund growth is expected to increase.

Accepted Answer

A) True 
 B)False

Question 17

Property-casualty insurance firms are relatively unaffected by the business cycle.

Accepted Answer

A) True 
 B)False

Question 18

In recent years, U.S. life insurers have increased their holdings of commercial mortgages and reduced their investments in one- to four-family residential mortgages.

Accepted Answer

A) True 
 B)False

Question 19

Pension funds have little need for liquidity because their cash inflows and outflows tend to be highly predictable.

Accepted Answer

A) True 
 B)False

Question 20

Conglomerate financial institutions:

Accepted Answer

A)  Violate U.S. antitrust laws 
B)  Cannot cross state lines 
C)  Have not always proven to be cost effective 
D)  Are restricted by federal law in the number of products and services they can offer 
E)  None of the above 
A)  Violate U.S. antitrust laws 
B)  Cannot cross state lines 
C)  Have not always proven to be cost effective 
D)  Are restricted by federal law in the number of products and services they can offer 
E)  None of the above

Exam 16: Exploring Various Aspects of Pension Funds, Finance Companies, and Insurance Industry

In making their investment decisions, life insurers pursue:

One area of growing insurance needs, according to the text, is small businesses.

Interest income and capital gains are federal tax-exempt for pension funds.

By purchasing shares in an investment company small investors can get greater price stability and reduced risk in their investments.

As investors, pension funds:

GICs have helped to reduce insurance company risk in recent years by stabilizing their sources of funds and lowering the average cost of life insurance company funding.

Loans to policyholders further increase the stability of cash flows for the insurance industry.

Which of the following institutions is often called the "department store of consumer and business credit?"

The gap between what Penny Benny has promised to payout to pension plan members and its available assets has widened significantly, in 2005 exceeding:

The principal asset held by state and local government employee retirement funds is corporate bonds.

A symbiotic is a conglomerate financial firm that offers a variety of financial services under one roof.

Cash balance pension funds tend to favor young workers, while they may actually reduce older workers benefits.

Most finance companies are heavy users of debt in financing their operations.

The gradual aging of the general population in the U.S. and several other nations tends to accelerate the growth of pension funds.

Because of the aging of the population, pension fund growth is expected to increase.

Property-casualty insurance firms are relatively unaffected by the business cycle.

In recent years, U.S. life insurers have increased their holdings of commercial mortgages and reduced their investments in one- to four-family residential mortgages.

Pension funds have little need for liquidity because their cash inflows and outflows tend to be highly predictable.

Conglomerate financial institutions:

Understanding the Financial System and Its Impact on the Economy and Markets

Financial Systems, Monetary Units, and the Role of Money in the Economy

Financial Indices, Market Information, and Economic Data

The Financial Crisis and Its Impact on the Mortgage Market and Economy

Understanding Interest Rates, Savings, and the Wealth Effect

Financial Concepts and Interest Rates

Effects of Inflation and Yield Curves on Stock Prices and Investments

Understanding Risk and Market Factors in Financial Securities

Exploring Financial Markets and Hedging Strategies

Factors Affecting the Volume of CDs

Exploring the Reserve Accounting System, Money Markets, and Financial Instruments

Exploring Central Banks and Their Impact on the Economy and Financial System

Central Banking and Monetary Policy: Exploring Tools and Strategies

Banking and Financial Services: Regulations, Operations, and Trends

Comparative Analysis of Financial Institutions and Their Operations

The Impact of Deregulation and Regulation on Financial Institutions and Banking Industry in the United States

Treasury Auctions, Public Debt, and Government Borrowing: Exploring the Us Treasury System

Corporate Bond Pricing, Market Development, and Financing Strategies

The Truth About Regulation Fd and Stock Holdings: Debunking Common Myths in the Financial Market

Flexible Savings Account Options

Mortgage Market and Mortgage Instruments

International Financial Transactions and Balance of Payments

International Banking and Financial Regulations

Exploring the Complexities of Financial Services and Regulation

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