Multiple Choice
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1.
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The “current” rate of interest paid on a traditional fixed annuity
is:
a. | tied to current market rates | b. | whatever rate the annuity company chooses to
pay | c. | guaranteed at the time the contract is established | d. | whatever rate of
interest the company can earn on the investments in the general
account |
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2.
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When the current rate of interest is set using a tiered rate method, the
contractholder will earn different rates of interest depending on:
a. | the total amount invested in the contract | b. | whether the contract
is eventually annuitized or not | c. | when the premiums are paid into the
contract | d. | none of the above |
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3.
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Client A invests $50,000 in a fixed annuity contract and earns a current rate of
4% this year, while Client B invests $100,000 in the same contract and earns 4.25%. Which
interest crediting method does this contract use?
a. | new money method | b. | portfolio method | c. | sliding scale
method | d. | tiered-rate method |
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4.
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Which interest crediting method is based on when premiums are paid into the
contract?
a. | pocket of money method | b. | tiered rate method | c. | sliding scale
method | d. | portfolio method |
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5.
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Contracts with a “bailout” rate will:
a. | automatically terminate the contract if interest rates fall below the initial
rate | b. | allow contractholder to surrender the contract without surrender charges if the
current rate falls below the bailout rate | c. | tie current interest rates tied to market
rates | d. | guarantee the principal in the event of the annuity company’s
insolvency |
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6.
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The value of a variable contract’s annuity units will be adjusted based
on:
a. | changes in the stock market | b. | minimum interest rates guaranteed by the
annuity company | c. | the investment results in the selected separate account | d. | none of the
above |
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7.
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The assumed interest rate (AIR) in a variable annuity:
a. | serves the same function as the minimum guaranteed rate in a fixed
annuity | b. | is the minimum amount the investments in the separate account must earn before the
contract will pay income payments to the annuitant | c. | is compared to the investment returns in the
separate account to determine if this month’s income payment will be higher or lower than last
month’s | d. | is the rate of interest state regulators apply to determine a variable
annuity’s reserve requirement |
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8.
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An equity indexed annuity that is simply based on the value of the index at
maturity relative to the value of the index at inception uses the
a. | point-to-point indexing method | b. | high-water indexing method | c. | ratchet
indexing method | d. | annual reset indexing method |
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9.
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The annual reset indexing method is sometimes called the:
a. | high-water method | b. | ratchet method | c. | point-to-point
method | d. | average value method |
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10.
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An investor is comparing the purchase of an equity indexed annuity (EIA) based
on the S&P 500 with purchase Spiders®, an exchange traded fund (ETF) that holds a
stock portfolio that mirrors the S&P 500 index. Which of the following is true?
a. | the total return to the investor will be higher in the EIA than the
ETF | b. | the EIA’s return includes dividend income, the ETF does not | c. | the investor can
avoid market downturns in the ETF, but not the EIA | d. | none of the above are
true |
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11.
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The S&P 500 increased by 12% this year. Which of the following annual
reset contracts will credit the investor with the greatest increase in a EIA based on that
index?
a. | Contract A with a 90% participation rate and 8% interest rate cap | b. | Contract B with a
80% participation rate and 10% index cap | c. | Contract C with a 3% yield spread and 15% index
cap | d. | Contract D with a 2% yield spread and 10% interest rate
cap |
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12.
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Which of the following annuity contracts impose the fewest costs on
contractholders?
a. | immediate fixed annuities | b. | deferred fixed annuities | c. | immediate variable
annuities | d. | deferred variable annuities |
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13.
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Which of the following are properly analyzed as a cost of investing in an equity
indexed annuity?
a. | participation rates | b. | floors | c. | ratchets | d. | all of the
above |
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14.
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Which of the following is costs in a deferred fixed annuity is the least
transparent (not clearly disclosed) to contractholders?
a. | surrender charges | b. | interest rate spread | c. | contract
charges | d. | market value adjustments |
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15.
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A market value adjustment affects fixed deferred annuity holders who:
a. | annuitize their contracts | b. | surrender their contracts | c. | take penalty-free
withdrawals | d. | all none of the above |
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