LOS c: Compare pension portfolios built from a traditional asset-only perspective to portfolios designed relative to liabilities and discuss why corporations may choose not to fully implement the liability mimicking portfolio.

Q1. Which of the following is NOT a characteristic of the liability-mimicking portfolio for a pension? The liability-mimicking portfolio:

A)   will be costly.

B)   will have a high return.

C)   will have low risk.

Q2. Which of the following would NOT be typically included in the asset-only approach portfolio of a pension?

A)   Medium-duration bonds.

B)   Derivative contracts.

C)   Short-duration bonds.

Q3. Which of the following would result in a pension plan investing more in equities?

A)   The retirement benefits are no longer indexed to inflation.

B)   The retirement benefits are indexed to inflation.

C)   The workforce is younger.

[此贴子已经被作者于2009-3-5 16:20:34编辑过]

LOS c: Compare pension portfolios built from a traditional asset-only perspective to portfolios designed relative to liabilities and discuss why corporations may choose not to fully implement the liability mimicking portfolio. fficeffice" />

Q1. Which of the following is NOT a characteristic of the liability-mimicking portfolio for a pension? The liability-mimicking portfolio:

A)   will be costly.

B)   will have a high return.

C)   will have low risk.

Correct answer is B)

The liability-mimicking, low-risk portfolio will be costly. The future liability from future service rendered and future participants is uncertain and is not funded. An investment in the liability-mimicking portfolio would therefore require future cash payments by the sponsor to satisfy these obligations. By construction, the liability-mimicking portfolio will not provide a return in excess of the liabilities.

Q2. Which of the following would NOT be typically included in the asset-only approach portfolio of a pension?

A)   Medium-duration bonds.

B)   Derivative contracts.

C)   Short-duration bonds.

Correct answer is B)

In the traditional asset-only approach, the portfolio is usually composed of 60%-70% equities with the rest in short and medium duration nominal bonds.

Q3. Which of the following would result in a pension plan investing more in equities?

A)   The retirement benefits are no longer indexed to inflation.

B)   The retirement benefits are indexed to inflation.

C)   The workforce is younger.

Correct answer is C)

If the workforce is younger, more will be allocated to equities. If there were more inflation indexing, inflation-indexed bonds would be emphasized. If there were less inflation indexing, nominal bonds would be emphasized.