27 CFA Level 3 Mock Exam 2015 Questions and Answers on Portfolio Management

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views insurance investment portfolios as quasi-trust funds

• liability noise
• geometric spending rule
• public policy on insurance
• surplus return

1. policyholder's share (not taxed)2. funds transferred to the surplus (taxed)

• non-life insurance company constraints
• time horizon for pension plans
• investment income is divided into two parts of tax purposes:
• when risk of pension assets increases

captures the systematic risk of the firm's operating assets

• operating foundation
• operating asset beta
• foundation risk
• total asset beta

allows employees to purchase the company stock, sometimes at a discount from market price

• time horizon for pension plans
• company sponsored foundation
• employee stock ownership plan (ESOP)
• public policy on insurance

hybrid defined-benefit plan that maintains individual account records for plan participants showing their current value of accrued benefit

• surplus return
• active lives
• total asset beta
• cash balance plan

- the removal of funds from intermediary financial institutions- industry responses have been a reduction in portfolio durations and provisions for additional liquidity reserves

• liability noise
• disintermediation risk
• legal considerations
• foundation risk

individuals no longer employed by the firm or organization who earned retirement benefits from past employment but have not started receiving the benefits

• inactive participants
• active lives
• operating asset beta
• cash balance plan

spending = (R)(spending,t-1)(1+I,t-1) + (1 - R)(S)(market value,t-1)R = smoothing rateI = inflationS = spending rate

• community foundation
• geometric spending rule
• foundation risk
• total asset beta

1. due to the high uncertainty of claims, liquidity requirements are relatively high2. shorter duration liabilities and shorter time horizons3. non-life insurance companies are taxable entities4. regulatory considerations are slightly less onerous for non-life insurance companies

• time horizon for pension plans
• inactive participants
• public policy on insurance
• non-life insurance company constraints