CEBS RPA2 EXAM QUESTIONS AND
ANSWERS. VERIFIED 2025/2026.
Purchasing power risk - ANS Risk of nominal rate of return not keeping up with inflation
Business risk - ANS Risk of decline in earnings affecting ability to pay interest/dividends
Interest rate risk - ANS Inverse relationship between interest rates and bond prices
Market risk - ANS Individual stock's reaction to market changes
Specific risk - ANS Risk intrinsic to a particular firm
Tax aspect of investment - ANS Important for pension fund due to tax-exempt status
Relative liquidity - ANS Importance to pension plan's investment manager
Risk-and-return characteristics - ANS Historical studies show riskiest investments generate
highest yields
Steps in performance measurement - ANS Establishment, Input, Processing, Output
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Caveats in choosing performance measurement system - ANS Avoid hasty choice, Fit
investment objectives, Measurement may alter process, Avoid overmeasurement
Internal rate of return - ANS Determines if investment achieves assumed rate of return
Time-weighted rate of return - ANS Computed by dividing time interval into subintervals
Alpha value - ANS Amount of return produced by portfolio independent of market
Beta value - ANS Average return on portfolio per 1% return on market
Risk-adjusted rate of return - ANS Used to measure risk-adjusted performance
Money market instruments - ANS U.S. Treasury bills, Federal agency issues, Certificates of
deposit, Commercial paper, Money market mutual funds
Use of bonds in pension plan portfolios - ANS Generate cash flow similar to benefit
payments, assume interest rate risk
Basic types of common stocks - ANS Blue-chip, Growth, Income, Cyclical, Defensive, Interest-
sensitive
Reasons for using mutual funds in pension plans - ANS Greater liquidity, Diversification,
Portfolio specialization, Daily update of holdings, Ease of meeting goals, Checking past
performance
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Information in questionnaire for investment managers - ANS Portfolio strategies, Ownership,
Decision-making procedures, Clients and references, Performance statistics
Passive investment strategy - ANS Broadly diversified buy-and-hold portfolio replicating
market index
Index funds and active management - ANS Allows focus on specialty areas, higher risk
strategy
Dedication and immunization techniques - ANS Construct bond portfolio to fund specific plan
liabilities
Employer and employee roles in DC plan investment - ANS Employer selects, monitors,
communicates; Employees assume investment risks
Benefits of successful investment program - ANS Low-cost fees, Ease of administration,
Flexibility, Improved recognition, Increased participation, Improved returns, Lower costs
Factors contributing to enhanced investment opportunities in DC plans - ANS Public
awareness, Employer recognition, Improved administration, Marketing efforts
Variety of investment choices in DC plan - ANS Does not ensure maximum benefits, need for
education
Protection and improvement of DC plan investment outcomes - ANS PPA provisions for
investment advice, diversification, fiduciary exemption
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
ANSWERS. VERIFIED 2025/2026.
Purchasing power risk - ANS Risk of nominal rate of return not keeping up with inflation
Business risk - ANS Risk of decline in earnings affecting ability to pay interest/dividends
Interest rate risk - ANS Inverse relationship between interest rates and bond prices
Market risk - ANS Individual stock's reaction to market changes
Specific risk - ANS Risk intrinsic to a particular firm
Tax aspect of investment - ANS Important for pension fund due to tax-exempt status
Relative liquidity - ANS Importance to pension plan's investment manager
Risk-and-return characteristics - ANS Historical studies show riskiest investments generate
highest yields
Steps in performance measurement - ANS Establishment, Input, Processing, Output
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Caveats in choosing performance measurement system - ANS Avoid hasty choice, Fit
investment objectives, Measurement may alter process, Avoid overmeasurement
Internal rate of return - ANS Determines if investment achieves assumed rate of return
Time-weighted rate of return - ANS Computed by dividing time interval into subintervals
Alpha value - ANS Amount of return produced by portfolio independent of market
Beta value - ANS Average return on portfolio per 1% return on market
Risk-adjusted rate of return - ANS Used to measure risk-adjusted performance
Money market instruments - ANS U.S. Treasury bills, Federal agency issues, Certificates of
deposit, Commercial paper, Money market mutual funds
Use of bonds in pension plan portfolios - ANS Generate cash flow similar to benefit
payments, assume interest rate risk
Basic types of common stocks - ANS Blue-chip, Growth, Income, Cyclical, Defensive, Interest-
sensitive
Reasons for using mutual funds in pension plans - ANS Greater liquidity, Diversification,
Portfolio specialization, Daily update of holdings, Ease of meeting goals, Checking past
performance
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Information in questionnaire for investment managers - ANS Portfolio strategies, Ownership,
Decision-making procedures, Clients and references, Performance statistics
Passive investment strategy - ANS Broadly diversified buy-and-hold portfolio replicating
market index
Index funds and active management - ANS Allows focus on specialty areas, higher risk
strategy
Dedication and immunization techniques - ANS Construct bond portfolio to fund specific plan
liabilities
Employer and employee roles in DC plan investment - ANS Employer selects, monitors,
communicates; Employees assume investment risks
Benefits of successful investment program - ANS Low-cost fees, Ease of administration,
Flexibility, Improved recognition, Increased participation, Improved returns, Lower costs
Factors contributing to enhanced investment opportunities in DC plans - ANS Public
awareness, Employer recognition, Improved administration, Marketing efforts
Variety of investment choices in DC plan - ANS Does not ensure maximum benefits, need for
education
Protection and improvement of DC plan investment outcomes - ANS PPA provisions for
investment advice, diversification, fiduciary exemption
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
