Reference no: EM132278368

Which of the following statements concerning the various actuarial assumptions used in estimating an employer’s contributions to a defined-benefit pension plan is correct?

The higher the assumed rate of investment income, the larger the employer’s assumed contribution rate.

The higher the employee turnover or termination rate, the larger the employer’s assumed contribution rate should be.

The greater the expected impact of inflation on salary scales, the larger the employer’s assumed contribution rate should be.

Actuarial assumptions are usually so accurate that adjustments in the employer’s annual contribution rate is seldom necessary.

2. Which of the following is a reason that single sourcing is considered risky/bad?

a. Larger orders make quantity discounts more likely

b. Decreases the item to item quality variability of items purchased

c. There could be supplier interruptions due to political instability

d. It could establish close relationships with the supplier

3. While knowing or suspecting that I have developed some illness in recent weeks, I nevertheless signed a contract with the insurance company which only sees my health report from last year. I reasoned that even if the insurance company were to find out later on, it would still be very hard or costly for it to legally prove that I know about the illness at the point of signing. This scenario supports the idea that

A) Asymmetric information can be a source of transaction costs

B) Performance is hard to measure, making contracting incomplete

C) People have bounded rationality so that they cannot enumerate all possible outcomes and contingencies in the contract

D) Agency costs can make "buy" more preferable than "make"

4. Increased chance of potential hold up problems can cause which of the following? Multiple correct answers may apply.

A) Occurrence of renegotiating contract terms

B) Reduced transaction costs in market transactions

C) Transacting parties become reluctant to invest in specialized plants

D) Transacting parties start to seek out alternative suppliers and/or buyers

E) Increased specialization as firms start to focus on fewer parts of the vertical chain

5. All of the following suggest that a qualified plan may be appropriate for a business owner, EXCEPT:

The business is stable and has been in existence for several years.

The business owner wants the plan to cover only the highly-compensated employees.

The business owner is willing to accept the responsibility of being a fiduciary.

The business owner is willing to accept significant administrative responsibilities.

6. Suppose production of handbags involves a vertical chain with 4 steps: sourcing raw leathers, make raw leathers into finished leathers, use finished leathers to make handbags, and sell or distribute handbags. Which company below is more integrated?

A) Firm A sources raw leathers and transform them into finished leathers, which are sold to downstream handbag firms

B) Firm B is part of the Handbag Alliance which includes firms that source raw leathers and those that make finished leathers, and handbag producers

C) Firm C sources its own raw leathers and makes its own finished leathers, has its own brand of handbags made from its finished leathers. It is also the parent company of Handbag World, a retail chain that sells luxury goods, including Firm C's branded handbags.

D) Firm D is a specialized handbag producer and has a long term contract with a finished leather maker.