To determine the value of a variable annuity contract, compute the present value of the payments. You will probably not have to do this for the Series 7 exam, but you will need to know how to come by the payment amount and the discount rate.

The payment amount is usually quoted as a dollar figure per \$1,000 invested at the beginning of the payout period. The discount rate of a variable annuity is called the assumed interest rate (AIR). The AIR is a projection, nothing more. It is certainly not a guarantee.

 Exam Tips and TricksYou cannot bring a calculator into the exam room, and you will not be expected to do present value calculations on scratch paper. But let\'s walk through the mechanics so you understand the process conceptually.

 Look Out!Say that, at the beginning of the payout phase, an investor has amassed \$1,000,000 and the payment amount is given at \$90 per \$1,000 invested, so her payment from the insurance company would be \$90,000. Let\'s further assume that the AIR set by the company and agreed to by the investor is 7%. Lastly, let\'s assume she has selected the option of receiving one payment per year for life, which an actuary for the company estimates at 25 more years. So the payment is \$90,000, the interest rate is 7% and the number of payments is 25. Punch all that into a financial calculator and you come up with a present value of \$1,048,822, which would be the value of the variable annuity contract.

Real Estate Investment Trusts (REITS)

Related Articles
1. Retirement

### How to Calculate the Value of Annuities

Here's everything you need to account for when calculating the present and future value of annuities.

### Advising FAs: Explaining Annuities to a Client

Conceptually speaking, annuities can be thought of as a reverse form of life insurance.
3. Retirement

### Annuities: How To Find The Right One For You

Fixed, variable and indexed annuities offer different features. Find out which one fits your needs.
4. Retirement

### How a Fixed Annuity Works After Retirement

These popular investments can provide a steady stream of income during your retirement years. Here are the details.
5. Retirement

### What Role Should Annuities Play in Retirement?

Fixed annuities can provide income protection for those worried about outliving their assets. But don't buy a bigger policy than you really need.
6. Retirement

### Variable Annuities: A Good Retirement Investment?

Variable annuities provide lifetime payments and tax-deferred growth, but â€“ given their hefty fees â€“ are they right for you?
7. Retirement

### Who Benefits From Retirement Annuities

Annuities guarantee some degree of fixed income in retirement. But is the security worth the fees and less favorable tax treatment? How to decide.

### Are Annuities Right for You?

Annuities are safe and often appealing, but IRAs and 401(k)s offer advantages that annuities typically canâ€™t match, with little additional risk.
9. Retirement

### Immediate Annuities: Guaranteed Payout At A Price?

This vehicle can have very low, or even negative, rates. Find out when it pays to invest.
10. Retirement

### Getting the Whole Story on Variable Annuities

Variable annuities are another way to save money tax-deferred - but don't jump in blindly!