Question 1

How do public pension plans differ in other countries? Has privatization worked overseas?

Accepted Answer

In Europe,some countries do not have a strong link between the amount paid in and the benefit received,notably France and Germany,and their pension plans are having funding difficulty. Other countries like Italy,Britain,and Sweden have tied benefits more closely to contributions. Britain and Sweden have partially privatized their public pensions with some success. Chile has successfully privatized their pension program. Tying benefits to contributions and the trend toward privatization help keep spending down as a percent of GDP.

Question 2

Which of the following is not one of the principal features of ERISA?

Accepted Answer

A) Vesting of benefits 
B) Employee termination 
C) Fiduciary responsibility 
D) Transferability 
E) Funding 
A) Vesting of benefits 
B) Employee termination 
C) Fiduciary responsibility 
D) Transferability 
E) Funding B

Question 3

Noninsured pension plans generally invest in riskier assets than insured pension plans.

Accepted Answer

A) True 
 B)False  True

Question 4

In 2016,pension fund reserves held by life insurance companies represent about 45 percent of the typical life insurer's assets.

Accepted Answer

A) True 
 B)False

Question 5

If you are married and you and your spouse make $160,000 total per year,you are not allowed to contribute to an IRA.

Accepted Answer

A) True 
 B)False

Question 6

An individual is considering contributing $4,000 per year to either a traditional or a Roth IRA. Payments would begin in one year. If she uses the traditional IRA,her contributions would be fully deductible. She is 40-years old and is in a 28 percent tax bracket. On either IRA she can earn 7 percent. When she retires at age 65,she believes she will be in a 15 percent tax bracket. Which type of IRA should she choose if she invests not only the $4,000 per year,but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 7 percent? She will withdraw all her money upon retirement and may owe taxes then,depending on the type of IRA chosen.

Accepted Answer

Traditional IRA + Taxable investment Amo

Question 7

If you believe that taxes are going to go up and you will likely have to pay a high tax rate when you retire,you will probably be better off with a Roth IRA than with a traditional IRA.

Accepted Answer

A) True 
 B)False

Question 8

An employee contributes 6 percent of her salary to her 401(k)plan and her employer contributes another $1,900. The employee earns $75,000 and is in a 28 percent tax bracket. If the employee earns 8.50 percent on all funds invested each year and her salary does not change,how much will she have in her account in 20 years?

Accepted Answer

A) $195,369 
B) $213,133 
C) $244,667 
D) $289,055 
E) $309,613 
A) $195,369 
B) $213,133 
C) $244,667 
D) $289,055 
E) $309,613

Question 9

A pension plan has promised to pay out $25 million per year over the next 15 years to its employees. Actuaries estimate the rate of return on the fund's assets will be 5.50 percent. What amount of pension fund reserves (to the nearest dollar)are needed for the plan to be fully funded?

Accepted Answer

A) $375,000,000 
B) $310,945,678 
C) $250,939,524 
D) $202,345,555 
E) $198,466,231 
A) $375,000,000 
B) $310,945,678 
C) $250,939,524 
D) $202,345,555 
E) $198,466,231

Question 10

IRAs are

Accepted Answer

A) self-directed investment vehicles designed to provide supplemental retirement income. 
B) corporate retirement plans for self-employed individuals and small businesses. 
C) specific classes of investments such as equities or bonds issued by certain corporations. 
D) investment vehicles created by ERISA. 
E) special types of life insurance policies. 
A) self-directed investment vehicles designed to provide supplemental retirement income. 
B) corporate retirement plans for self-employed individuals and small businesses. 
C) specific classes of investments such as equities or bonds issued by certain corporations. 
D) investment vehicles created by ERISA. 
E) special types of life insurance policies.

Question 11

Which of the following formulas is not used to determine pension benefits for defined benefit pension funds?

Accepted Answer

A) Flat-benefit formula 
B) Career-average formula 
C) Final-pay formula 
D) Career-contribution formula 
E) All of these choices are correct. 
A) Flat-benefit formula 
B) Career-average formula 
C) Final-pay formula 
D) Career-contribution formula 
E) All of these choices are correct.

Question 12

Under ERISA,pension fund managers are required to invest fund assets as wisely as if they were investing their own money. This requirement is called the

Accepted Answer

A) owl rule. 
B) vesting requirement. 
C) 403(b)requirement. 
D) prudent person rule. 
E) funding rule. 
A) owl rule. 
B) vesting requirement. 
C) 403(b)requirement. 
D) prudent person rule. 
E) funding rule.

Question 13

In general,in a defined benefit pension plan,the risk of shortfall is borne by the ________; while in a defined contribution pension plan,the risk of the shortfall is borne by the ________.

Accepted Answer

A) plan administrator; employee 
B) employee; employer 
C) employer; employee 
D) government; employer 
E) employer; government 
A) plan administrator; employee 
B) employee; employer 
C) employer; employee 
D) government; employer 
E) employer; government

Question 14

There are now Roth versions of 401(k)plans and 403(b)plans as well as Roth IRAs.

Accepted Answer

A) True 
 B)False

Question 15

Pension contributions paid to insured pension funds and the assets purchased with these funds become the legal property of the insurance company and are not the legal property of the individual pension fund contributors.

Accepted Answer

A) True 
 B)False

Question 16

ERISA established all but which one of the following?

Accepted Answer

A) Prudent man rule 
B) Maximum vesting times 
C) Minimum funding requirements 
D) Insurance for pension plan participants 
E) Minimum payouts for defined contribution plans 
A) Prudent man rule 
B) Maximum vesting times 
C) Minimum funding requirements 
D) Insurance for pension plan participants 
E) Minimum payouts for defined contribution plans

Question 17

Your company sponsors a 401(k)plan into which you deposit 8 percent of your $95,000 annual income. Your company matches 65 percent of the first 10 percent of your earnings. You expect the fund to yield 9 percent next year. If you are currently in the 30 percent tax bracket,what is your one-year return?

Accepted Answer

A) 64.136% 
B) 135.518% 
C) 182.232% 
D) 95.358% 
E) 112.135% 
A) 64.136% 
B) 135.518% 
C) 182.232% 
D) 95.358% 
E) 112.135%

Question 18

How is Social Security different from a private defined benefit plan? When and why is Social Security projected to become insolvent?

Accepted Answer

Social Security is a "pay as you go" pla

Question 19

Employee plus employer contributions to a 401(k)are $11,000 per year. Equity funds are earning 10 percent; bond funds,5 percent; and money market funds,3 percent. The employee will retire in 30 years. How much money will he have if he earns the average return from putting 65 percent of his money in equities,30 percent in bond funds,and the rest in money market funds?

Accepted Answer

A) $1,838,526 
B) $1,280,925 
C) $1,654,320 
D) $1,978,565 
E) $1,248,550 
A) $1,838,526 
B) $1,280,925 
C) $1,654,320 
D) $1,978,565 
E) $1,248,550

Question 20

How sound is the PBGC? How much do firms pay for pension fund insurance? Describe President Bush's proposal to increase funding for PBGC.

Accepted Answer

In 2012 and 2013,underfunded pension lia

How do public pension plans differ in other countries? Has privatization worked overseas?

Which of the following is not one of the principal features of ERISA?

Noninsured pension plans generally invest in riskier assets than insured pension plans.

In 2016,pension fund reserves held by life insurance companies represent about 45 percent of the typical life insurer's assets.

If you are married and you and your spouse make $160,000 total per year,you are not allowed to contribute to an IRA.

If you believe that taxes are going to go up and you will likely have to pay a high tax rate when you retire,you will probably be better off with a Roth IRA than with a traditional IRA.

A pension plan has promised to pay out $25 million per year over the next 15 years to its employees. Actuaries estimate the rate of return on the fund's assets will be 5.50 percent. What amount of pension fund reserves (to the nearest dollar)are needed for the plan to be fully funded?

IRAs are

Which of the following formulas is not used to determine pension benefits for defined benefit pension funds?

Under ERISA,pension fund managers are required to invest fund assets as wisely as if they were investing their own money. This requirement is called the

In general,in a defined benefit pension plan,the risk of shortfall is borne by the ; while in a defined contribution pension plan,the risk of the shortfall is borne by the .

There are now Roth versions of 401(k)plans and 403(b)plans as well as Roth IRAs.

Pension contributions paid to insured pension funds and the assets purchased with these funds become the legal property of the insurance company and are not the legal property of the individual pension fund contributors.

ERISA established all but which one of the following?

How is Social Security different from a private defined benefit plan? When and why is Social Security projected to become insolvent?

How sound is the PBGC? How much do firms pay for pension fund insurance? Describe President Bush's proposal to increase funding for PBGC.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

Exam 18: Pension Funds

How do public pension plans differ in other countries? Has privatization worked overseas?

Which of the following is not one of the principal features of ERISA?

Noninsured pension plans generally invest in riskier assets than insured pension plans.

In 2016,pension fund reserves held by life insurance companies represent about 45 percent of the typical life insurer's assets.

If you are married and you and your spouse make $160,000 total per year,you are not allowed to contribute to an IRA.

If you believe that taxes are going to go up and you will likely have to pay a high tax rate when you retire,you will probably be better off with a Roth IRA than with a traditional IRA.

A pension plan has promised to pay out $25 million per year over the next 15 years to its employees. Actuaries estimate the rate of return on the fund's assets will be 5.50 percent. What amount of pension fund reserves (to the nearest dollar)are needed for the plan to be fully funded?

IRAs are

Which of the following formulas is not used to determine pension benefits for defined benefit pension funds?

Under ERISA,pension fund managers are required to invest fund assets as wisely as if they were investing their own money. This requirement is called the

In general,in a defined benefit pension plan,the risk of shortfall is borne by the ________; while in a defined contribution pension plan,the risk of the shortfall is borne by the ________.

There are now Roth versions of 401(k)plans and 403(b)plans as well as Roth IRAs.

Pension contributions paid to insured pension funds and the assets purchased with these funds become the legal property of the insurance company and are not the legal property of the individual pension fund contributors.

ERISA established all but which one of the following?

How is Social Security different from a private defined benefit plan? When and why is Social Security projected to become insolvent?

How sound is the PBGC? How much do firms pay for pension fund insurance? Describe President Bush's proposal to increase funding for PBGC.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

In general,in a defined benefit pension plan,the risk of shortfall is borne by the ; while in a defined contribution pension plan,the risk of the shortfall is borne by the .