Question

Mack purchased a variable annuity with $50,000 premium deposits, which he splits equally between 2 subaccounts, at the time of purchase, the value of units in subaccount 1 was $25 and the value of units in subaccount 2 was $10.00, 6 months later the value of units in subaccount 1 increased to $30 and the value of units in subaccount 2 decreased to $8, What was the value of Mack's contract at that point?

Answer 1

Answer:

$50,000

Explanation:

Calculation to determine the value of Mack's contract at that point

First step is to calculate Units Purchased of Subaccount 1 using this formula

Units Purchased of Subaccount 1 = Amount of Premium deposit in Sub Account 1 /Unit Value of Sub Account 1

Let plug in the formula

Units Purchased of Subaccount 1 =($50,000/2 )/$25

Units Purchased of Subaccount 1 = $25000 / $25

Units Purchased of Subaccount 1 = 1000 Units

Second step is to calculate the Units Purchased of Subaccount 2 using this formula

Units Purchased of Subaccount 2= Amount of Premium deposit in Sub Account 2/Unit Value of Sub Account 2

Let plug in the formula

Units Purchased of Subaccount 2 =($50,000/2)/$10

Units Purchased of Subaccount 2 = $25000 / $10

Units Purchased of Subaccount 2 = 2500 Units

Now let determie the Value of Mark Contract at that point

Value of Mark Contract = (1000 * $30) + (2500 * $8)

Value of Mark Contract = $30000 + $20000

Value of Mark Contract = $50000

Therefore the value of Mack's contract at that point is $50,000