Chapter 8 Practice Questions
1. Which of the following are true of fixed annuities?
I. Investments are deposited into the insurance company’s general account.
II. Investments are deposited into separate subaccounts that take on more risk.
III. A fixed annuity is a security.
IV. An equity-indexed annuity is an example of a fixed annuity.
A. I and III
B. II and IV
C. I and IV
D. II and III
2. Jane has a deferred annuity with a surrender period of seven years. At four years in, she decides she wants to surrender the account. What is the result?
A. Jane will pay a surrender charge.
B. Jane will lose any additional earnings beyond the initial investment.
C. Jane will not be penalized for surrendering the account.
D. Jane must wait the full seven years to access her account.
3. Which of the following is true of an equity-indexed annuity?
I. The value of the account is influenced by the performance of the stock market.
II. The investor will never lose more than he puts into the annuity.
III. The investor receives the full benefit of the market upswing in the value of the annuity.
IV. The investor only receives the participation rate of increase on the annuity.
A. II and III
B. I and IV
C. II and III
D. I and II
4. Mary contributed $50,000 to her non-qualified variable annuity. Eight years later, at the age of 60, she withdraws $75,000 from the annuity. How is the withdrawal taxed?
A. $ 25,000 at the capital gains rate
B. $75,000 at the capital gains rate
C. $25,000 at her ordinary income rate
D. $75,000 at her ordinary income rate
5. A variable annuity might be preferable to a fixed annuity for which of the following reasons?
I. Lower investment risk
II. Likelihood of higher returns on investment
III. Lower purchasing power risk
IV. LIFO tax treatment
A. II and IV
B. II and III
C. I and III
D. III and IV
6. What is the pu