Q:

The Shur-Gro variable annuity uses an AIR of 3% for those contract holders who are in the annuity stage. The past few months, the actual returns created by the separate account have been, respectively; 6%, 5.5%, 4% and 3.5%. Which of the following is a true statement regarding the payouts to annuitants?

A) Payments have not been affected
B) Payments have increased
C) Payments have steadily decreased
D) Payments have remained level

A:

The correct answer is b.
Any time the actual growth rate of the separate account exceeds the account’s AIR, the payment will increase compared to the previous month’s payment. Note that the mathematical reason for this is far beyond the scope of Series 6 exam.


RELATED FAQS

  1. For what types of financial instruments would I want to calculate the present value ...

    Learn about the types of financial instruments the present value of an annuity calculation is most useful for, including ...
  2. What is an annuity?

    An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments ...
RELATED TERMS
  1. Deferred Payment Annuity

    An annuity where the payments received will start some time in ...
  2. Whole Life Annuity Due

    A financial product sold by insurance companies that requires ...
  3. Annuity Consideration

    The money that an individual pays to an insurance company in ...
  4. Immediate Payment Annuity

    An annuity contract that is purchased with a single lump-sum ...
  5. Delayed Annuity

    An annuity in which the first payment is paid at a later date ...
  6. Annuity Due

    An annuity whose payment is to be made immediately, rather than ...
Hot Definitions
  1. Foreign Exchange Reserves

    Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities on their ...
  2. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that decreased and eventually eliminated tariffs to encourage economic activity ...
  3. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  4. Derivative

    A security with a price that is dependent upon or derived from one or more underlying assets.
  5. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  6. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such ...
Trading Center