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LOS e: Evaluate the risk management considerations in investing pension plan assets.
Q1. Brown Textiles has constructed its pension plan investment policy so that its pension assets have a high correlation with pension plan liabilities and a zero correlation with the firm’s operations. Which of the following is the most likely impact of following such an investment policy?
A) The firm will have a high probability of making pension payments when its ability to fund those payments is high.
B) A positive long-run impact on firm valuation, and a more stable pension surplus.
C) The firm will have a high probability of making pension payments when its ability to fund those payments is low.
Q2. The pension plan at Ferrell Manufacturing currently has a surplus. Ferrell’s management team wants to maintain the level of the surplus and keep it as stable as possible. In order to accomplish their goal, how should they position the correlation of the pension plan’s assets with the pension liabilities and the firm’s operations respectively?
Correlation of Assets with Liabilities Correlation of Assets with Firm Operations
A) Low Low
B) High High
C) High Low
Q3. Genentron is a small biotechnology firm that is developing new therapies and drugs for different types of cancer. Genentron has a number of benefits for its employees, including a defined benefit pension plan. The plan is overseen by Rolf Pyle and Shannon DeGroot, both senior executives with Genentron. Most of Genentron’s employees are younger, so Pyle and DeGroot have invested the pension plan’s investment portfolio aggressively. Currently, the pension portfolio allocation is 30% in the Russell 1000 Growth Index and 70% in the Commodore Health Care Fund. Pyle and DeGroot are discussing the allocation of the plan at the most recent meeting. Pyle states, “If the health care industry leads the market again this year, it is unlikely that our pension expense will have much impact on our strong earnings, and we will be able to share more of those earnings with our shareholders.” DeGroot replies, “The allocation of our pension assets should ensure that Genentron will not have to make large pension contributions even if profitability is low.”
With regard to their statements about Genetron’s pension plan:
A) Pyle’s statement is correct; DeGroot’s statement is incorrect.
B) Pyle’s statement is correct; DeGroot’s statement is correct.
C) Pyle’s statement is incorrect; DeGroot’s statement is incorrect. | 
发表于 2009-3-5 10:40
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