15. Craig owns an index annuity that has a 90 percent participation rate, a 14 percent cap, and a zero percent floor. The contract is backed by a 2 percent minimum guaranteed rate. If the index return at the end of the crediting period is 10 percent, how much interest will be credited to Craig's contract for that term

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Alfred Gilmore

18 August, 15:23

15. Craig owns an index annuity that has a 90 percent participation rate, a 14 percent cap, and a zero percent floor. The contract is backed by a 2 percent minimum guaranteed rate. If the index return at the end of the crediting period is 10 percent, how much interest will be credited to Craig's contract for that term

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Skye Booth · Answer 1

9% interest will be credited to Craig's contract for that term

Explanation:

The index annuity works in such a way that if there is a cap then the interest rate can be maximum to that cap while minimum guaranteed indicates the minimum interest rate that will be credited.

Now since the participation rate is 90% and the index has returned 10%, thus it will return 0.9*10% = 9% interest rate.

This is well within the range of 2% - 14% and thus doesn't need any adjusting.