Reading 27: Linking Pension Liabilities to Assets LOS b～ benefit, identify, economic, liability, following

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LOS b: Discuss the fundamental and economic exposures of pension liabilities and identify asset types that mimic these liability exposures.

Q1. Which of the following defined benefit pension plan segments generates the greatest liability noise? The greatest source of liability noise is that from:

A)   deferreds.

B)   inactive participants.

C)   active participants.

 

Q2. A defined benefit pension plan decides to index their benefits to inflation. Meanwhile, the labor force has increased in productivity and profits have soared. Which of the following best describes the changes to their liability-mimicking portfolio? The liability-mimicking portfolio should have:

A)   fewer equities and more real return bonds.

B)   more equities and more nominal bonds.

C)   more equities and more real return bonds.

 

Q3. Which of the following pension plan segment obligations would not be hedged by the liability-relative portfolio? The segment exposure not hedged is that from:

A)   future wage growth.

B)   future participants.

C)   inactive participants.

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