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RPA 2 > RPA 2 - End of Chapter Questions > Flashcards

RPA 2 - End of Chapter Questions Flashcards

1
Q

An investment approach designed to replicate the performance of a given market is referred to as a(n):

  1. Hedging approach
  2. Passive investment style
  3. Performance tracking approach
  4. Active investment management
  5. Index arbitrage method
A

B

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2
Q

Pension plans have been choosing mutual funds as investment vehicles more frequently for which of the following reasons?

  • Greater liquidity through ease of entry and exit
  • Greater degree of diversification
  • Easier means of portfolio specialization
  1. II only
  2. I and II only
  3. I and III only
  4. II and III only
  5. I, II and III
A

E

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3
Q

All the following represent important caveats that must be kept in mind in choosing a performance measurement system EXCEPT:

  1. The time-weighted rate of return is largely ineffective as a means of evaluating investment managers.
  2. There is a danger that a hastily chosen system, poorly related to real needs, can rapidly degenerate into a mechanistic, pointless exercise.
  3. The system should fit the investment objectives—and not the reverse.
  4. Measuring the process may alter it.
  5. To save time and cost, it is important that overmeasurement be avoided.
A

A

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4
Q

Which of the following statements describes an individual retirement account (IRA) rollover?

  1. It is only permissible after the age of 591⁄2.
  2. It is often triggered by required minimum distributions.
  3. It permits the transfer of contributions but not investment earnings on a tax-free basis.
  4. It can cause the amount rolled over to be subject to an excise tax if the transaction is deemed ineligible.
  5. It requires 20% federal income tax withholding if the amount being rolled over exceeds a specified amount.
A

D

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5
Q

Which of the following is (are) correct concerning the yearly deductibility of contributions in an IRA?

  • The maximum percentage of earned income that is deductible is 25%.
  • The maximum dollar contribution that is deductible is $40,000.
  • The deduction applies only to those who itemize deductions on the federal income tax forms.
  1. None
  2. III only
  3. I and II only
  4. II and III only
  5. I, II and III
A

A

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6
Q

All the following statements concerning distributions under a traditional deductible IRA are correct EXCEPT:

  1. Generally, unless special exceptions apply, distributions may not be made prior to the age of 591⁄2 without incurring additional tax liability.
  2. Distributions from an individual retirement savings plan are taxed as ordinary income to the recipient in the year of payment.
  3. Distributions must commence prior to the end of the year in which the individual attains the age of 65.
  4. A premature distribution not only is included in one’s gross income for the year but also requires an additional 10% tax on the amount of the premature distribution.
  5. Lump-sum distributions do not qualify for capital gains treatment.
A

C

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7
Q
A

A

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8
Q

Which of the following statements about the various small business plans is (are) correct?

  • Savings incentive match plan for employees (SIMPLE plans)-individual retirement account (IRA) plans can allow loans but not simplified employee pension (SEP) or Keogh plans.
  • SEP plans are subject to the same contribution limits as traditional IRAs.
  • A SIMPLE account balance may be rolled into an IRA provided certain time limits are met.
  1. II only
  2. III only
  3. I and III only
  4. II and III only
  5. I, II and III
A

B

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9
Q

All the following statements regarding SIMPLE plans are correct EXCEPT:

  1. The plans may be established by employers with 100 or fewer employees.
  2. All plan contributions are fully vested and nonforfeitable.
  3. Employers can only make matching contributions to the plan.
  4. Employers have certain notification requirements to employees.
  5. Self-employed individuals may participate in this type of plan.
A

C

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10
Q

An agreement whereby one person (or legal entity) agrees to defer payment of compensation for services rendered currently by the other contracting party with actual payment for those services delayed until sometime in the future is the definition of a(n):

  1. Individual retirement savings plan
  2. Individual Keogh plan
  3. Tax-deferred annuity
  4. Nonqualified deferred compensation plan
  5. Thrift plan
A

D

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11
Q

The employer’s cost of providing benefits under an executive retirement plan is dependent upon which of the following factors?

  • Level of benefits
  • Administration expense
  • Eligibility requirements
  1. I only
  2. II only
  3. III only
  4. I and II only
  5. I, II and III
A

E

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12
Q

All the following factors concerning executive retirement arrangements are correct EXCEPT:

  1. Executive retirement arrangements typically are designed to provide an employee with only an unsecured contractual right to future payment from his or her employer.
  2. Any life insurance policy carried in conjunction with an executive retirement arrangement should be paid for, owned by and payable solely to the employee.
  3. An executive retirement arrangement may provide for the forfeiture of retirement benefits when a former employee goes to work for a competitor.
  4. Most executive benefit plans have been established on a defined benefit basis, particularly in cases where the plan builds on an underlying broad-based defined benefit plan.
  5. An executive retirement arrangement can be used to reward executives and other key employees without regard to the nondiscrimination requirements of qualified plans.
A

B

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13
Q

Which of the following Internal Revenue Code sections deals with taxation of property transferred in connection with the performance of services?

  1. Section 61
  2. Section 83
  3. Section 415
  4. Section 422
  5. Section 423
A

B

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14
Q

Which of the following statements regarding incentive stock option plans is (are) correct?

  • They were created by the Economic Growth and Tax Relief Reconciliation Act of 2001.
  • They may not discriminate in favor of highly compensated employees.
  • Typically they are made available to employees with over five years of employment.
  1. None
  2. I only
  3. II only
  4. I and II only
  5. I, II and III
A

A

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15
Q

All of the following statements regarding the valuation of employee stock options are correct EXCEPT:

  1. The options must be valued to the extent that employers financially recognize the cost of options when they vest.
  2. The options are not publicly traded and have no readily ascertainable market value.
  3. A well-known model for the valuation is the Black-Scholes option pricing model.
  4. Among several factors that comprise the calculation of an option are the option exercise price and the current price of the underlying stock.
  5. The intrinsic value of an option is the difference between the underlying stock’s current market price and the option’s expected dividend yield in perpetuity.
A

E

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16
Q

Which of the following is a type of benefit formula used in a defined benefit pension plan?

  1. Flat service formula
  2. Percentage per year of service formula
  3. Unified defined benefit formula
  4. Actuarially determined formula
  5. Flat amount formula
A

E

17
Q

Advantages of a final pay defined benefit pension plan include which of the following?

  • The employee’s initial benefit keeps pace with any preretirement inflationary trends.
  • A final pay plan generally produces more favorable results for key employees than the career average approach.
  • This type of plan is usually less expensive than one which bases benefits on career average earnings.
  1. I only
  2. I and II only
  3. I and III only
  4. II and III only
  5. I, II and III
A

B

18
Q

Arguments advanced in favor of contributory defined benefit plans include all the following EXCEPT:

  1. From a philosophical viewpoint, employees are responsible for meeting part of their own economic security needs.
  2. If employees contribute, it will mean a smaller employer contribution to provide the same overall plan benefits.
  3. Something for nothing is too often taken for granted, and the deductions from current earnings will continually remind employees that the employer is assuming a large share of providing the plan benefits.
  4. The contributory plan provides an employee with additional funds in the event of termination of employment.
  5. Employee contributions represent dollars that have not been taxed.
A

E

19
Q

Advance funding permits an employer to incur the cost of providing pension plan benefits:

  1. On a current payroll basis as employees retire
  2. When tax benefits are the greatest
  3. In a manner that is exempt from the minimum funding standards of the Employee Retirement Income Security Act (ERISA)
  4. Fairly evenly over the lifetime of the pension plan
  5. Through a single sum sufficient to provide the promised retirement benefits
A

D

20
Q

Which of the following factors is (are) relevant to the determination of the ultimate cost of a pension plan?

  • Total benefits paid
  • Costs of administration
  • Investment income on fund assets
  1. I only
  2. II only
  3. I and III only
  4. II and III only
  5. I, II and III
A

E

21
Q

All the following factors would tend to increase the ultimate cost of a pension plan’s retirement benefits EXCEPT

  1. Higher mortality
  2. Lower turnover
  3. Higher administrative expenses
  4. Lower interest rates
  5. Lower retirement ages
A

A

22
Q

A participant’s account in a target benefit plan is generally credited with:

  1. A rate based on the yield on one-year Treasury bills prevailing at the end of the plan year
  2. The actual investment earnings of the plan
  3. A rate based on the consumer price index for the previous year
  4. The assumed actuarial interest rate
  5. A rate chosen by the plan sponsor
A

B

23
Q

Which of the following statements concerning a cash balance plan is (are) correct?

  • Plan termination insurance premiums are no longer paid when a defined benefit plan is converted to a cash balance plan.
  • Lump sums are rarely permitted under this type of hybrid plan.
  • Cash balance plans are considered career average pay plans rather than final average pay plans.
  1. I only
  2. II only
  3. III only
  4. I and III only
  5. I, II and III
A

C

24
Q

Cash balance plans are the same as traditional defined benefit plans with respect to all the following EXCEPT:

  1. Pension Benefit Guaranty Corporation coverage
  2. Prohibition on withdrawals during active employment
  3. Employee retirement benefits are not directly related to the investment return on plan assets.
  4. Integration with Social Security is permitted.
  5. Employer promises are expressed in terms of a monthly pension.
A

E

25
Q

When a plan sponsor denies a claim for benefits, the claimant must be notified of the plan’s appeal procedure and be given the right to appeal with the right to file such an appeal within at least:

  1. 60 days
  2. 70 days
  3. 80 days
  4. 90 days
  5. 100 days
A

A

26
Q

Which of the following are reporting and disclosure documents needed to comply with the statutory disclosure requirements of Title I of the Employee Retirement Income Security Act (ERISA)?

  • I. Summary plan description
  • II. Summary of material modification
  • III. Personal benefits statement
  1. None
  2. I only
  3. I and II only
  4. I and III only
  5. I, II and III
A

E

27
Q

All the following items must be distributed automatically to pension plan participants or beneficiaries EXCEPT:

  1. Summary of material modification
  2. Summary annual report
  3. Terminating employee’s benefits statement
  4. Written explanation of denied benefits
  5. Plan documents
A

E

28
Q

A person who has discretionary authority or control in the administration of a retirement plan is referred to as a:

  1. Beneficiary
  2. Sponsor
  3. Fiduciary
  4. Controlling party
  5. Disinterested party
A

C

29
Q

Which of the following could meet the requirements of a qualified default investment alternative?

  • An energy sector mutual fund
  • A balanced fund
  • A managed account
  1. None
  2. I only
  3. III only
  4. II and III only
  5. I, II and III
A

D

30
Q

All of the following factors potentially explain individual investor suboptimal choices EXCEPT:

  1. Bounded rationality
  2. Effects of savings anchors
  3. Investor indulgence
  4. Peer influence
  5. Disposition effect
A

C

31
Q

Soft-dollar arrangements occur when the standard fee charged for a service is:

  1. Equal to the actual cost incurred
  2. Lower than the actual cost incurred
  3. Greater than the actual cost incurred
  4. Waived in its entirety
  5. Imputed to the retirement plan
A

C

32
Q

Which of the following statements regarding retirement plan limits for loans is (are) correct?

  • Plan limits may never exceed statutory limits.
  • Loan policies should be amenable to the unique needs of participants as the needs arise.
  • When a participant with an outstanding loan terminates, he or she is not allowed to continue making payments on the loans.
  1. None
  2. I only
  3. II only
  4. III only
  5. II and III only
A

B

33
Q

An investment policy is needed for all of the following retirement savings structures EXCEPT:

  1. A profit-sharing plan
  2. An individual retirement account (IRA)
  3. A 401(k) plan with participant-directed investments
  4. A 403(b) plan with employer contributions
  5. A money purchase pension plan
A

B

34
Q

Retirement planning software models that use a set of “fixed” assumptions and do not vary these assumptions are known as:

  1. Deterministic models
  2. Stochastic models
  3. Mixed models
  4. Monte Carlo models
  5. Stationary models
A

A

35
Q

Which of the following laws or sets of legal principles influence the process of portfolio design as conducted by professional wealth managers?

  • The Employee Retirement Income Security Act (ERISA)
  • The Third Restatement of Trusts
  • The Uniform Prudent Investor Act
  1. None
  2. I only
  3. III only
  4. II and III only
  5. I, II and III
A

E

36
Q

All of the following decision elements are important in preparing for the distribution phase of retirement EXCEPT:

  1. Assessing the efficiencies of funding structures
  2. Investment selection
  3. Determining plan sponsor fiduciary liability
  4. Monitoring excesses or deficiencies relative to retirement income needs
  5. Strategic allocation of resources within retirement saving structures
A

C

RPA 2 (13 decks)

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