Practice Test Geeks(CPC) Certified Pension Consultant Practice Test
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Financial Planning & Investment Strategies Flashcards

7 cards from real CPC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial Planning & Investment Strategies flashcards as text

  1. Under the prudent investor rule, which factor is MOST critical when constructing a pension portfolio?

    Answer: Diversification to reduce unsystematic risk

    The prudent investor rule requires fiduciaries to diversify investments to minimize unsystematic risk unless there is good reason not to.

  2. A defined benefit plan's funded status deteriorates because liability growth outpaces asset returns. Which strategy BEST addresses this asset-liability mismatch?

    Answer: Implement a liability-driven investment (LDI) strategy using long-duration bonds

    LDI aligns asset duration with pension liability duration, reducing funded-status volatility when interest rates change.

  3. Which metric measures the sensitivity of a bond's price to a 1% change in interest rates?

    Answer: Modified duration

    Modified duration approximates the percentage price change of a bond for a 1% (100 basis point) change in yield.

  4. A plan sponsor wants to reduce equity volatility while maintaining upside participation. Which overlay strategy is MOST appropriate?

    Answer: Buying put options on a broad equity index

    Buying put options provides downside protection (a floor) while preserving all upside beyond the option premium cost.

  5. In a glide path design for a target-date fund, equity allocation typically:

    Answer: Decreases as the target date approaches

    Glide paths reduce equity exposure over time as participants near retirement to decrease the impact of sequence-of-returns risk.

  6. Which asset class is typically used in pension portfolios to hedge against unexpected inflation?

    Answer: Treasury Inflation-Protected Securities (TIPS)

    TIPS principal adjusts with CPI, providing a direct hedge against unexpected inflation for pension liabilities indexed to wage or price growth.

  7. A pension plan's Investment Policy Statement (IPS) serves primarily to:

    Answer: Document the plan's investment objectives, constraints, and governance framework

    The IPS establishes written guidelines for investment decision-making, defining objectives, risk tolerance, asset allocation ranges, and manager selection criteria.