Exam 16: Mutual Funds, Insurance Companies, Investment Banks, and Other Financial Firms

During the 1990s and early into the new century hedge funds became prominent and night 2005 held assets well over

The Financial Accounting Standards Board requires all pension funds to be fully funded by the year 2000.

A growing sector within the general finance company industry consists of small-loan companies, which include pawnshops, title loans firms and check-cashing companies among others. What do these firms do? What kinds of customers do they serve primarily?

In 2006, financial assets held by mutual funds (Open-End Investment Companies) was right around $9.5 trillion.

The total financial assets held by a life insurers in 2006 is around $7.5 trillion.

An employee has just joined SONY Corporation and a pension plan is set up in her name under which the company will contribute $5,000 per year and the employee herself will contribute $1,000 per year. How much will this year's contributed funds be worth in 10 years if the pension plan pledges a 7 percent annual return on each dollar saved? Suppose the employee plans to retire in 10 years. How much will be available in total at retirement if the company and employee contribute the amounts noted above each year for the next 10 years and this employee owns (is vested with) the full amount of savings contributed to the pension plan? If the pension promises an annual annuity rate of 6 percent given this employee's life expectancy, what annual retirement income can she expect?

Delbert Ray is planning to retire this year and draw upon the accumulated savings in his pension plan which amounts to $205,800. Mr. Ray is vested with 80 percent of the accumulated funds and, based on his life expectancy, has been promised an annual annuity (income) rate of 3.5 percent. What is Delbert Ray's expected retirement income from his pension plan?

The volume of financial assets held by all life insurance companies in 2000 was about:

An index fund follows the movement of a particular index, for example, the Consumer Price Index (CPI) and its value changes each month.

The majority of benefit payments by life insurance companies are made to beneficiaries of deceased policyholders rather than living policyholders.

What advantages do investment companies offer the small saver? Why has their growth been so erratic in recent years?

What is a REIT? A mortgage bank? A leasing company? Why do you think these specialized financial institutions came into being? Have they faced any serious problems of late?

Loans to policyholders of life insurance companies have increased greatly during the past 20 years, including the decade of the 1980s.

Total financial assets outstanding for property-casualty insurers in 2006 was $820 billion.

The approximate number of life insurance companies headquartered and operating in the United States is:

What is the principal function of pension funds? Explain why these institutions have been among the most rapidly growing financial institutions in recent years. Do you expect their growth to be faster or slower in the future? Why? What is the difference between a defined benefit and a defined contribution pension plan?

Pension funds have been among the most rapidly growing of all financial intermediaries. Between 1980 and 2000, the assets of all private and public pension funds multiplied more than 10 times over, reaching more than $8 trillion in the United States alone in 2000.

Against what kinds of risk do life insurers protect their policyholders? How about property-casualty insurers?

What role do finance companies play in supplying funds to the financial marketplace? How many different kinds of finance companies are there?

In 2006, financial assets held by mutual funds (opened and an investment companies) was right around