CEBS RPA 2 CORRECT FINAL EXAM QUESTIONS
AND ANSWERS RATED A+
✔✔Time-Weighted Return - ✔✔Preferred method for evaluating investment managers
✔✔Internal Rate of Return - ✔✔Affected by timing of cash flows
✔✔404(c) Safe Harbor - ✔✔Limits fiduciary liability if participants control investments
and requirements met
✔✔404(c) Trap - ✔✔Does NOT remove fiduciary duty to offer prudent investments
✔✔PPA 2006 - ✔✔Allowed automatic enrollment and QDIA protections
✔✔QDIA - ✔✔Qualified default investment alternative
✔✔Negative Election - ✔✔Employees automatically enrolled unless they opt out
✔✔Employer Stock Risk - ✔✔Employees' jobs and retirement both tied to employer
performance
✔✔ESOP Exception - ✔✔PPA diversification rules do not apply to ESOPs
✔✔Fiduciary Duty - ✔✔Act prudently and solely in participants' interests
✔✔Prudent Fiduciary Actions - ✔✔Diversify investments and monitor providers
continuously
✔✔Participant Responsibility - ✔✔Employees choose investments and bear investment
risk in DC plans
, ✔✔Employer Responsibility in DC Plans - ✔✔Select and monitor investment options
and communicate information
✔✔Passive Management - ✔✔Attempts to match market returns at low cost
✔✔Active Management - ✔✔Attempts to outperform market through manager decisions
✔✔Why Passive Investing is Attractive - ✔✔Hard for active managers to consistently
beat market after fees
✔✔Index Fund - ✔✔Passive fund designed to replicate market index
✔✔Dedication/Immunization - ✔✔Bond strategy matching assets to liabilities
✔✔Money Market Instruments - ✔✔Short-term low-risk investments
✔✔Treasury Bills - ✔✔Lowest default risk short-term government securities
✔✔Commercial Paper - ✔✔Unsecured short-term corporate debt
✔✔Certificates of Deposit - ✔✔Bank-issued fixed maturity investments
✔✔Money Market Mutual Fund - ✔✔Provides diversification and liquidity in money
markets
✔✔Corporate Bond - ✔✔Long-term debt issued by corporations
✔✔Mortgage Bond - ✔✔Bond secured by specific assets
✔✔Debenture - ✔✔Unsecured corporate bond
✔✔Call Provision - ✔✔Allows issuer to redeem bond early
✔✔Call Premium - ✔✔Penalty issuer pays when calling bond early
✔✔Municipal Bond Trap - ✔✔Less attractive to pension plans because plan income
already tax-exempt
✔✔GNMA - ✔✔Government-guaranteed mortgage-backed security
✔✔Blue-Chip Stock - ✔✔Large stable company with long dividend history
✔✔Growth Stock - ✔✔High growth and high risk stock
AND ANSWERS RATED A+
✔✔Time-Weighted Return - ✔✔Preferred method for evaluating investment managers
✔✔Internal Rate of Return - ✔✔Affected by timing of cash flows
✔✔404(c) Safe Harbor - ✔✔Limits fiduciary liability if participants control investments
and requirements met
✔✔404(c) Trap - ✔✔Does NOT remove fiduciary duty to offer prudent investments
✔✔PPA 2006 - ✔✔Allowed automatic enrollment and QDIA protections
✔✔QDIA - ✔✔Qualified default investment alternative
✔✔Negative Election - ✔✔Employees automatically enrolled unless they opt out
✔✔Employer Stock Risk - ✔✔Employees' jobs and retirement both tied to employer
performance
✔✔ESOP Exception - ✔✔PPA diversification rules do not apply to ESOPs
✔✔Fiduciary Duty - ✔✔Act prudently and solely in participants' interests
✔✔Prudent Fiduciary Actions - ✔✔Diversify investments and monitor providers
continuously
✔✔Participant Responsibility - ✔✔Employees choose investments and bear investment
risk in DC plans
, ✔✔Employer Responsibility in DC Plans - ✔✔Select and monitor investment options
and communicate information
✔✔Passive Management - ✔✔Attempts to match market returns at low cost
✔✔Active Management - ✔✔Attempts to outperform market through manager decisions
✔✔Why Passive Investing is Attractive - ✔✔Hard for active managers to consistently
beat market after fees
✔✔Index Fund - ✔✔Passive fund designed to replicate market index
✔✔Dedication/Immunization - ✔✔Bond strategy matching assets to liabilities
✔✔Money Market Instruments - ✔✔Short-term low-risk investments
✔✔Treasury Bills - ✔✔Lowest default risk short-term government securities
✔✔Commercial Paper - ✔✔Unsecured short-term corporate debt
✔✔Certificates of Deposit - ✔✔Bank-issued fixed maturity investments
✔✔Money Market Mutual Fund - ✔✔Provides diversification and liquidity in money
markets
✔✔Corporate Bond - ✔✔Long-term debt issued by corporations
✔✔Mortgage Bond - ✔✔Bond secured by specific assets
✔✔Debenture - ✔✔Unsecured corporate bond
✔✔Call Provision - ✔✔Allows issuer to redeem bond early
✔✔Call Premium - ✔✔Penalty issuer pays when calling bond early
✔✔Municipal Bond Trap - ✔✔Less attractive to pension plans because plan income
already tax-exempt
✔✔GNMA - ✔✔Government-guaranteed mortgage-backed security
✔✔Blue-Chip Stock - ✔✔Large stable company with long dividend history
✔✔Growth Stock - ✔✔High growth and high risk stock
