Test Q's 34-66 Flashcards
Which of the following criteria could be used to establish allocation groups under a new comparability plan?
I. Percentage of firm ownership
II. Age
III. Length of service
I, II and III
Which of the following statements regarding variable annuities is (are) correct?
I. Variable annuity payments to annuitants are guaranteed to last a lifetime.
II. The amount of the annuity payments is guaranteed.
III. The amount of the annuity payments is guaranteed not to decrease.
I
Which of the following statements regarding the concept of savings anchors is (are) correct?
I. Savings anchors involve an initial starting point or level from which the decision maker adjusts and that point or level is subject to certain biases.
II. Researchers have found that savings anchors vary with age and income.
III. In retirement planning, savings anchors affect more the level of savings than a computation of the necessary funds to sustain a certain level of income.
1,2, 3
Which of the following describe the capital gain (loss) component of return on a typical investment?
I. The periodic cash flows on the investment
II. The difference between the purchase price and the price at which an asset can be, or is, sold.
III. Dividend payments (from stocks)
2
Which of the following administrative requirements apply to target benefit plans?
I. Payment of termination insurance premiums to the Pension Benefit Guaranty Corporation (PBGC)
II. Calculation of periodic actuarial valuations required under the Employee Retirement Income Security Act (ERISA)
III. Use of an actuarial cost method in determining an initial contribution rate for each employee
3
According to some studies which of the following groups has (have) consistently earned above-average investment profits when they make large trades?
I. Corporate insiders
II. Mutual fund investors
III. Investors who use technical analysis
1
Which of the following plans allow plan sponsors to make contributions on a discretionary basis?
I. Age-weighted profit sharing plans
II. New comparability plans
III. Target benefit plans
1, 2
For a retirement plan asset allocation model to qualify under the Department of Labor’s (DOL’s) safe harbor provisions as investment education, rather than as investment advice, which of the following conditions must be met?
I. The model must be based on generally accepted investment theories.
II. The model’s underlying assumptions must be disclosed.
III. The model must be accompanied by a statement explaining that participants should apply the model to retirement assets and exclude other income, assets and investments from consideration.
1, 2
Which of the following are considered insiders by the Securities and Exchange Commission (SEC) and required to report their monthly stock purchases and sales to the SEC?
I. Officers
II. Directors
III. Owners of more than 5% of a company’s stock
1, 2
Which of the following statements is (are) correct when analyzing rates of return and comparing the arithmetic and geometric means?
I. The geometric mean normally will be less than the arithmetic mean
II. The arithmetic mean is preferable for showing the true rate of growth
III. The geometric mean should not be used unless there is a minimum of 20 different rates
1
Which of the following items should be included in an investment policy statement for a qualified retirement plan when investments are participant-directed?
I. The number of fund options permitted
II. The range of investment options allowed
III. The frequency of rebalancing
1, 2
Which of the following statements accurately describe(s) equity index funds?
I. They are based on the efficient market hypothesis
II. They are expected to perform well when the stock market drops and vice versa
III. Plan sponsors generally prefer the fund with the largest beta value
1
Which of the following statements describe(s) information that must be provided to retirement plan participants who can direct plan investments?
I. An explanation on the importance of diversifying investments
II. Information explaining plan restrictions on fixed investment versus equity investment allocation rates
III. A statement cautioning participants on the risk of holding more than 20% of a portfolio in the securities of any single entity, excluding any employer securities
1
The financial measurement known as the internal rate of return is:
I. Highly effective as a means of evaluating investment managers
II. The rate of return that accumulates all of the cash flows of a portfolio to exactly the market value of the ending balance
III. Valuable in that it allows the sponsor to determine whether the investment portfolio is achieving the rate of return assumed for actuarial calculations
2, 3
Which of the following is (are) investment techniques using bond portfolios to meet emerging pension obligations?
I. Contingent immunization
II. Dedication
III. Portfolio insurance
1, 2
As the number of securities in a portfolio increases, which of the following occurs?
I. The importance of each individual security’s risk decreases
II. The expected return increases
III. The importance of the covariance relationships increases
1, 3
Which of the following statements is (are) correct concerning investment advice provided to plan participants by a plan fiduciary?
I. If requested to do so by a plan participant, a plan sponsor must supply investment advice.
II. If investment advice involves fiduciary advisor selection, a plan sponsor must allow for multiple fiduciary advisors.
III. Once fiduciary advisors are selected by a plan sponsor, their performance of this service need only undergo scrutiny upon re-bid at a future date.
None
Which of the following statements is (are) correct regarding the concept of “mean reversion”?
I. It is interpreted to mean that if stock returns have been unusually good in the recent past, they are likely to perform at the historical average in the future.
II. It implies in part that equity risk is generally lower for those with longer investment horizons.
III. Historically investors who have successfully moved in and out of mean-reverting assets have improved their overall returns.
2
Among the requirements for an investment to be considered a qualified default investment alternative (QDIA) is (are) which of the following?
I. It must be managed either by an investment manager as specified under the Employee Retirement Income Security Act of 1974 or by an investment company registered under the Investment Company Act of 1940.
II. The QDIA must be diversified so as to minimize the risk of large losses.
III. The QDIA must have at least 15% of the eligible employees enrolled.
1, 2
Which of the following statements regarding the weak form of market efficiency is (are) correct?
I. The weak form of efficiency is concerned with the predictive value of past stock price movements
II. The study of public information such as earnings and dividends is important to the weak form of efficiency
III. If the market is efficient in the weak form, technical analysis has little or no value
1, 3
Which of the following statements regarding exchange-traded funds (ETFs) is (are) correct?
I. They are very inefficient from an income tax point of view.
II. They are obligated to redeem their shares at the net asset value.
III. They can be index funds.
3
Which of the following statements concerning pension equity plans is (are) correct?
I. Pension equity plans are based on final average pay and the percentage credits that a worker receives each year while he or she is a plan participant
II. Pension equity plans are less suited to fast-track employees than are traditional defined benefit plans
III. Pension equity plans typically provide a relatively equal level of earnings for employees in specific job classes regardless of longevity
1
Which of the following situations could result in a fiduciary being held liable for a violation committed by a cofiduciary?
I. If the fiduciary knowingly conceals the cofiduciary’s violation
II. If the fiduciary has knowledge of the cofiduciary’s violation
III. If by the fiduciary’s own violation, he or she enables the cofiduciary to commit a violation
1 2 3
Which of the following statements regarding pension plan funds is (are) correct?
I. The tax aspect of an investment held in a pension fund is important.
II. A pension fund manager is likely to view a tax-exempt type of investment more favorably than one that is not.
III. The investment’s relative liquidity is often disregarded by pension fund managers.
1
Which of the following penalties can result when a fiduciary of a retirement plan breaches or violates his or her responsibilities?
I. The plan is disqualified.
II. An excise tax is levied.
III. The fiduciary is held personally liable.
2 3
Which of the following types of fees is (are) associated with a collective investment fund offered under a 401(k) plan?
I. Front-end load
II. Back-end load
III. Investment management fees
3
Markowitz diversification analysis generates efficient portfolios based on a set of inputs which include which of the following?
I. The expected return for every security being considered
II. The standard deviation for every security being considered
III. The excess return on the market portfolio
1 2
Which of the following is (are) among the conditions for an efficient market?
I. Information is costless and widely available
II. Investors react quickly and fully to new information
III. Investors eliminate nonsystematic risk by holding well- diversified portfolios
1 2
Which of the following is (are) disadvantages of a defined benefit hybrid retirement plan?
I. It may make it more difficult to replace midcareer employees with younger, mobile employees.
II. It may erode the plan sponsor’s fundamental objective of providing retirement benefits.
III. If the plan’s benefits do not accrue quickly enough, younger participants may not perceive sufficient value in the plan.
2 3
Which of the following is (are) correct regarding a cumulative wealth index?
I. Return relatives are used to compute the index
II. A cumulative wealth index is the same as an arithmetic mean rate of return
III. A cumulative wealth index can be computed only if all of the returns during the period for the calculation are positive
1
Which of the following statements regarding the use of electronic media in disclosing plan information is (are) correct?
I. Use of electronic media has been severely limited because of the media’s difficulties associated with ensuring actual receipt of information.
II. Provided certain conditions are met, summary plan descriptions, summaries of material modifications, and summary annual reports may be conveyed in electronic form.
III. Pension plan investment information, material on pension plan loans, and responses to written requests from plan participants and beneficiaries may not be conveyed in electronic form.
2
Which of the following statements regarding 12b-1 fees of mutual funds is (are) correct?
I. They range as high as 5% of the trade transaction
II. They are annual fees
III. They are allowed only in small mutual funds because the objective is to increase sales and achieve economies of scale
2
