- CFA Exams
- CFA Level I Exam
- Study Session 5. Financial Reporting and Analysis (1)
- Reading 14. Employee Compensation: Post-Employment and Share-Based
- Subject 3. Analysis of Pension Plan Disclosures
CFA Practice Question
Conservative pension-related rates assumptions include:
II. low discount rate.
III. high rate of compensation growth.
IV. low rate of compensation growth.
V. higher assumed rate of return on plan assets.
VI. lower assumed rate of return on plan assets.
I. high discount rate.
II. low discount rate.
III. high rate of compensation growth.
IV. low rate of compensation growth.
V. higher assumed rate of return on plan assets.
VI. lower assumed rate of return on plan assets.
A. I, III and VI.
B. II, III and VI.
C. II, IV and VI.
Explanation: The assumptions make the plan appears less well funded.
User Contributed Comments 4
| User | Comment |
|---|---|
| PedroEdmundo | Low discount rate, high rate of compensation and low E(ROA) |
| Hishy | higher compensation growth rate means the plan must earn more |
| mrpman | how does lower discount rate make the plan appear less funded? I thought adding a higher discount rate would do so. |
| mike_ast | Lower discount rate = higher PBO, therefore it’s a more conservative measure |