Question

Which of the following is not a distinguishing characteristic of a derivative instrument?

• A. Derivative instruments have terms that require or permit net settlement.

• B. Derivative instruments have a low initial net investment.

• C. Derivative instruments are highly effective throughout their term.

• D. Derivative instruments have one or more underlyings and notional amounts.

The accumulated benefit obligation measures

• A. the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.

• B. an estimated total benefit at retirement and then computes the level cost that will be sufficient, together with interest expected to accumulate at the assumed rate, to provide the total benefits at retirement.

• C. the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.

• D. the shortest possible period for funding to maximize the tax deduction.

Answer 1

1. C. derivative instruments are highly effective throughout their term (factual )

2. A. the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels (Theoritical)

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