Topic 9

Question 1

When are pension funds underfunded?

Answer 1

Pension Assets < PV of Benefits

Question 2

When are Pension funds over-funded?

Answer 2

Pension Assets > PV of Benefits

Question 3

Defined Contribution Pension Plan

Answer 3

ER & EE contribute some of salary to investment vehicles (like mutual funds)…RISK of low returns

Question 4

Defined Benefit Pension Plan

Answer 4

depends on years of service and income in last few years…RISK of under funding

Question 5

Mutual Funds

Answer 5

investment vehicle made up of pool of money from many people for investing in securities

Question 6

Closed-end Mutual Funds

Answer 6

funds that sells a fixed amt of shares & invests the proceeds

Question 7

Open-end Mutual Funds

Answer 7

redeems shares @ NAV and then sells new shares

Question 8

NAV?

Answer 8

Net Asset Value per Share

Question 9

Load

Answer 9

sells new shares @NAV + Sales Fee

Question 10

No-Load

Answer 10

sells shares @ NAV

Question 11

Exchange Traded Funds (ETFs)

Answer 11

investment fund traded on stock exchange

Question 12

Hedge Funds

Answer 12

fund that hedges against market movements. (see ex. in notes)
**Not Regulated, Lmtd to 100 Participants.

Question 13

What do Finance Companies do?

Answer 13

offer subprime loans to riskier borrowers

Question 14

What do investment banks do?

Answer 14

• help companies raise $$ through bond/equity financing
• serve as brokers/dealers
• advise on mergers/acquisitions
• trade securities for their own accounts