Reading 28:Managing Institutional Investor Portfolios- LO

status, correct, definition

Q8. Regarding the pension terminology in Exhibit A, the definition of:

A) ABO is incorrect; PBO is incorrect; funded status is correct.

B) ABO is correct; PBO is correct; funded status is incorrect.

C) ABO is incorrect; PBO is correct; funded status is correct.

Q9. Future pension contributions required will be directly affected by:

A) the expected return on existing plan assets and pension default expectations.

B) the expected return on existing plan assets and and pension expense requirements.

C) prior expected return estimates and pension expense requirements.

Q10. Considering the characteristics of Branch Industries and the Plan, which of the following statements best describes the ability of the pension plan to take risk?

A) Below average ability to take risk.

B) Above-average ability to take risk.

C) Average ability to take risk.

Q11. Which of the following factors should NOT affect a pension plan’s ability and/or willingness to take risk?

A) Workforce characteristics.

B) Portfolio manager's investment style.

C) Plan surplus.

Q12. To maximize the sponsor’s ability to make pension contributions and meet the Pension Committee’s desire to manage contribution volatility, Smith should give the most consideration to the correlation between the sponsor’s:

A) operating profitability and Plan asset returns.

B) operating profitability and Plan termination potential.

C) net income and the Plan’s ABO.

Q13. The liquidity requirement of a pension plan is directly related to and increased by a:

A) high proportion of active lives.

B) high proportion of retired lives.

C) low proportion of retired lives.

Q14. The discount rate used to determine the present value of pension liabilities is the fund’s:

A) required return.

B) contribution return.

C) desired return.

Q15. The funded status/surplus of a defined benefit plan impacts the risk tolerance of investment activities and is best described as:

A) larger pension surpluses indicate lower risk tolerance.

B) larger pension surpluses indicate higher risk tolerance.

C) there is no relationship between surplus in risk tolerance in a defined benefit plan.

Q16. Which of the following defined benefit pension plans has the greatest ability to accept risk?

Plan	Age of workforce	Ratio of active to retired participants	Sponsor’s debt ratio	Sponsor’s profitability
A	young	high	high	low
B	young	high	low	high
C	older	high	low	high