Question 1

Pension funds managed by life insurance companies concentrate on

Accepted Answer

A)  common stock. 
B)  bonds and mortgages. 
C)  preferred stock. 
D)  money market instruments. 
A)  common stock. 
B)  bonds and mortgages. 
C)  preferred stock. 
D)  money market instruments. B

Question 2

The composition of the stocks in a pension fund's portfolio is determined by the fund's portfolio managers.

Accepted Answer

A) True 
 B)False  True

Question 3

In recent years, defined-contribution plans have commonly been replaced by defined-benefit plans.

Accepted Answer

A) True 
 B)False  False

Question 4

With a ____ funding strategy, investment decisions are made with the objective of generating cash flows that match planned outflow payments.

Accepted Answer

A)  matched 
B)  mixed 
C)  projective 
D)  none of the above 
A)  matched 
B)  mixed 
C)  projective 
D)  none of the above

Question 5

A defined-benefit plan provides benefits that are determined by the accumulated contributions and the fund's investment performance.

Accepted Answer

A) True 
 B)False

Question 6

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.

Accepted Answer

A)  defined-benefit; defined-benefit 
B)  defined-contribution; defined-contribution 
C)  defined-contribution; defined-benefit 
D)  defined-benefit; defined-contribution 
A)  defined-benefit; defined-benefit 
B)  defined-contribution; defined-contribution 
C)  defined-contribution; defined-benefit 
D)  defined-benefit; defined-contribution

Question 7

Most pension fund contributions are contributed by the

Accepted Answer

A)  employer. 
B)  employee. 
C)  state government. 
D)  federal government. 
E)  none of the above 
A)  employer. 
B)  employee. 
C)  state government. 
D)  federal government. 
E)  none of the above

Question 8

To reduce interest rate risk, pension fund managers can

Accepted Answer

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. 
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.

Question 9

The government agency that guarantees that participants in defined-benefit plans will receive their benefits upon retirement is the:

Accepted Answer

A)  Federal Pension Insurance Corporation. 
B)  Pension Benefit Guaranty Corporation. 
C)  Office of Pension Insurance. 
D)  Employee Pension Protection Bureau. 
A)  Federal Pension Insurance Corporation. 
B)  Pension Benefit Guaranty Corporation. 
C)  Office of Pension Insurance. 
D)  Employee Pension Protection Bureau.

Question 10

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 matchedfunding and projective funding, ____ is more flexible for portfolio managers.

Accepted Answer

A)  matched funding; matched funding 
B)  projective funding; matched funding 
C)  projective funding; projective funding 
D)  matched funding; projective funding 
A)  matched funding; matched funding 
B)  projective funding; matched funding 
C)  projective funding; projective funding 
D)  matched funding; projective funding

Question 11

Taking speculative positions in stock options is generally not considered appropriate for retirement funds because of the high degree of risk involved.

Accepted Answer

A) True 
 B)False

Question 12

The asset composition of private pension portfolios is most heavily concentrated in

Accepted Answer

A)  corporate bonds. 
B)  mortgages. 
C)  common stock. 
D)  money market securities. 
A)  corporate bonds. 
B)  mortgages. 
C)  common stock. 
D)  money market securities.

Question 13

A pension fund manager might hedge against interest rate movements by selling bond futures contracts.

Accepted Answer

A) True 
 B)False

Question 14

Public pension funds can be classified by the manner in which contributions are received and benefits are paid.

Accepted Answer

A) True 
 B)False

Question 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.

Accepted Answer

A)  passive; active 
B)  active; active 
C)  active; passive 
D)  passive; passive 
A)  passive; active 
B)  active; active 
C)  active; passive 
D)  passive; passive

Question 16

Underfunded pensions are primarily a problem with defined-contribution pension plans.

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

A)  defined-benefit 
B)  defined-contribution 
C)  beneficiary 
D)  guarantor-insured 
A)  defined-benefit 
B)  defined-contribution 
C)  beneficiary 
D)  guarantor-insured

Question 18

Pension funds managed by life insurance companies are normally referred to as

Accepted Answer

A)  trust portfolios. 
B)  insured plans. 
C)  matched plans. 
D)  projective plans. 
A)  trust portfolios. 
B)  insured plans. 
C)  matched plans. 
D)  projective plans.

Question 19

Pension funds whose contributions are dictated by the benefits that will eventually be provided are called ____ plans.

Accepted Answer

A)  defined-benefit 
B)  defined-contribution 
C)  beneficiary 
D)  guarantor-insured 
A)  defined-benefit 
B)  defined-contribution 
C)  beneficiary 
D)  guarantor-insured

Question 20

Projective funding limits the manager's discretion, allowing only investments that match future payouts.

Accepted Answer

A) True 
 B)False

Exam 26: Pension Fund Operations

Pension funds managed by life insurance companies concentrate on

The composition of the stocks in a pension fund's portfolio is determined by the fund's portfolio managers.

In recent years, defined-contribution plans have commonly been replaced by defined-benefit plans.

With a ____ funding strategy, investment decisions are made with the objective of generating cash flows that match planned outflow payments.

A defined-benefit plan provides benefits that are determined by the accumulated contributions and the fund's investment performance.

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.

Most pension fund contributions are contributed by the

To reduce interest rate risk, pension fund managers can

The government agency that guarantees that participants in defined-benefit plans will receive their benefits upon retirement is the:

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 matchedfunding and projective funding, ____ is more flexible for portfolio managers.

Taking speculative positions in stock options is generally not considered appropriate for retirement funds because of the high degree of risk involved.

The asset composition of private pension portfolios is most heavily concentrated in

A pension fund manager might hedge against interest rate movements by selling bond futures contracts.

Public pension funds can be classified by the manner in which contributions are received and benefits are paid.

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.

Underfunded pensions are primarily a problem with defined-contribution pension plans.

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.

Pension funds managed by life insurance companies are normally referred to as

Pension funds whose contributions are dictated by the benefits that will eventually be provided are called ____ plans.

Projective funding limits the manager's discretion, allowing only investments that match future payouts.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance Operations

Filters

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.

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 matchedfunding and projective funding, is more flexible for portfolio managers.

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.