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FIN 540 week 9

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Question;FIN 540 ? Homework Chapter 29;? 2013 Strayer University. All Rights;Reserved. This document contains Strayer University Confidential and;Proprietary information;and may not be copied, further distributed;or otherwise disclosed in whole or in part, without the expressed written;permission of;Strayer University.;FIN 540 Homework Chapter 29! Page 1 of 2!;Directions: Answer the following five;questions on a separate document. Explain how you reached the;answer or show your work if a mathematical;calculation is needed, or both. Submit your assignment using;the assignment link in the course shell.;Each question is worth five points apiece for a total of 25 points;for this homework assignment.;1. Which of the following statements about;pension plans if any, is incorrect?;a. Under a defined benefit plan, the;employer agrees to give retirees a specifically defined;benefit, such as $500 per month or 50;percent of the employee's final salary.;b. A portable pension plan is one that an;employee can carry from one employer to another.;c. An employer's obligation is satisfied;under a defined contribution plan when it makes the;required contributions to the plan. The;risk of inadequate investment returns is borne by;the employee.;d. If assets exceed the present value of;benefits, the pension plan is fully funded.;e. A defined contribution plan is, in;effect, a savings plan that is funded by employers;although many plans also permit additional;contributions by employees.;2. Which of the following statements about;defined contribution plans is incorrect?;a. In general, employees can choose the;investment vehicle under a defined contribution;plan. Thus, highly risk-averse employees;can choose low-risk investments, while more;risk-tolerant employees can choose;high-risk investments.;b. In a defined contribution plan, the;employer must make larger-than-average contributions;to the pension plan when investment returns;have been below expectations.;c. Defined benefit plans are used more;often by large corporations than by small;companies.;d. The PBGC insures a portion of pension;benefits.;e. A defined contribution plan places the;risk of poor pension portfolio performance on the;employee.;3. Which of the following statements about;pension plan portfolio performance is incorrect?;a. Alpha analysis, which relies on the;Capital Asset Pricing Model, considers the risk of the;portfolio when measuring performance.;b. Peer comparison examines the relative;performance of portfolio managers with similar;investment objectives.;c. A portfolio annual return of 12 percent;from one investment advisor is not necessarily;better than a return of 10 percent from;another advisor.;d. In managing the retiree portfolio, fund;managers often use immunization techniques such;as alpha analysis to eliminate, or at least;significantly reduce, the risk associated with;changing interest rates.;e. Pension fund sponsors must evaluate the;performance of their portfolio managers;periodically as a basis for future asset;allocations.;FIN;540 ? Homework Chapter 29;? 2013 Strayer University. All Rights;Reserved. This document contains Strayer University Confidential and;Proprietary information;and may not be copied, further distributed;or otherwise disclosed in whole or in part, without the expressed written;permission of;Strayer University.;FIN 540 Homework Chapter 29! Page 2 of 2!;4. Ms. Lloyd, who is 25 and expects to;retire at age 60, has just been hired by the Chambers;Corporation. Ms. Lloyd's current salary is;$30,000 per year, but her wages are expected to;increase by 5 percent annually over the;next 35 years. Chambers has a defined benefit pension;plan in which workers receive 2 percent of;their final year's wages for each year of employment.;Assume a world of certainty. Further;assume that all payments occur at year-end. What is Ms.;Lloyd's expected annual retirement benefit;rounded to the nearest thousands of dollars?;a. $35,000;b. $57,000;c. $89,000;d. $116,000;e. $132,000;5. Kumar Consulting operates several stock;investment portfolios that are used by firms for;investment of pension plan assets. Last;year, one portfolio had a realized return of 12.6 percent;and a beta coefficient of 1.15. The average;T-bond rate was 7 percent and the realized rate of;return on the S&P 500 was 12 percent.;What was the portfolio's alpha?;a.?0.75%;b.?0.15%;c. 0%;d. 0.15%;e. 0.75%

 

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