Pension Fund Operations

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Question 1
Free
Multiple Choice

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

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A

defined-benefit

B

defined-contribution

C

beneficiary

D

guarantor-insured

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Question 2
Free
Multiple Choice

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.

Choose correct answer/s
A

defined-benefit

B

defined-contribution

C

beneficiary

D

guarantor-insured

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Question 3
Free
Multiple Choice

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.

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A

defined-benefit; defined-benefit

B

defined-contribution; defined-contribution

C

defined-contribution; defined-benefit

D

defined-benefit; defined-contribution

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Question 4
Free
Multiple Choice

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.

Choose correct answer/s
A

matched funding; matched funding

B

projective funding; matched funding

C

projective funding; projective funding

D

matched funding; projective funding

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Question 5
Free
Multiple Choice

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

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A

trust portfolios.

B

insured plans.

C

matched plans.

D

projective plans.

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Question 6
Multiple Choice

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

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A
corporate bonds.
B
mortgages.
C
common stock.
D
money market securities.
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Question 7
Multiple Choice

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.

Choose correct answer/s
A
passive; active
B
active; active
C
active; passive
D
passive; passive
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Question 8
Multiple Choice

Pension funds managed by life insurance companies concentrate on

Choose correct answer/s
A
common stock.
B
bonds and mortgages.
C
preferred stock.
D
money market instruments.
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Question 9
Multiple Choice

To reduce interest rate risk, pension fund managers can

Choose correct answer/s
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.
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Question 10
Multiple Choice

Most pension fund contributions are contributed by the

Choose correct answer/s
A
employer.
B
employee.
C
state government.
D
federal government.
E
none of the above
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Question 11
True/False

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

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True
False
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Question 12
True/False

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

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True
False
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Question 13
True/False

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

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True
False
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Question 14
True/False

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

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True
False
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Question 15
True/False

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

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True
False
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Question 16
True/False

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

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True
False
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Question 17
Multiple Choice

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

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A
matched
B
mixed
C
projective
D
none of the above
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Question 18
True/False

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

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True
False
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Question 19
Multiple Choice

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

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A
Federal Pension Insurance Corporation.
B
Pension Benefit Guaranty Corporation.
C
Office of Pension Insurance.
D
Employee Pension Protection Bureau.
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Question 20
True/False

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

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True
False
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