Defined-Contribution Pension Plan Assignment

Defined-Contribution Pension Plan Assignment

Instructions/Descriptions

Defined-Contribution Pension Plan Assignment

Homework

Assignment#3

1. Chapter12-P326-#10

(use Gap Analysis)

A bank with a two-year investment horizon has issued a one-year certificate of deposit for $50 million at an interest rate of 2 percent. With the proceeds, the bank has purchased a two-year Treasury note that pays 4 percent interest. What risk does the bank face in entering into these transactions? What would happen if all interest rates were to rise by 1 percent? (LO3)

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2. Chapter13-P358-#17

Suppose you have a defined-contribution pension plan. As you go through your working life, in what order would you choose to have the following portfolio al- locations: (a) 100 percent bonds and money-market instruments, (b) 100 percent stocks, (c) 50 percent bonds and 50 percent stocks? (LO2)

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3. Chapter15-p421-#17

Suppose in an election year the economy started to slow down. At the same time, clear signs of inflationary pressures were apparent. How might the central bank with a primary goal of price stability react? How might members of the incum- bent political party who are up for re-election react? (LO2)

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4. Chapter17-p480-#19

In which of the following cases will the size of the central bank’s balance sheet change? (LO2)

1. The Federal Reserve conducts an open market purchase of $100 million U.S. Treasury securities.
2. A commercial bank borrows $100 million from the Federal Reserve.
3. The amount of cash in the vaults of

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