Question

A client invests in an equity indexed annuity that has a guaranteed rate of 3% annual return, a 10% cap and 80% participation. in a year when the reference index increases by 15%, the invester will be credited with interate at the rate of?

Answer 1

Answer:

10%

The investor will be credited with the interest at the rate of 10%.

Explanation:

Cap on interest rate which is going to be credited = 10%

Participation=80%

Increase in reference index = 15%

As the participation rate is 80% so the investor can credit the amount of    80%  * 0.15= 12% (15% of 80%) but as it is given in the question, the cap of 10% is put on the interest rate credited so the investor will be credited with the interest at the rate of 10%.