Question

Sophia purchased a variable annuity contract with a purchase payment of $75,000. Surrender charges begin with 7 percent in the first year and decline by 2 percent each year. In addition, Sophia can withdraw 10 percent of her contract value each year without paying surrender charges. In the first year, Sophia needed to withdraw $13,000. Assume that the contract value had not increased or decreased because of investment performance. What was the surrender charge Sophia had to pay

Answer 1

"$385" would be the appropriate answer.

Step-by-step explanation:

The given values are:

Variable annuity contract value,

= $75,000

Surrender changes,

= 7%

i.e.,

= 0.07

Withdrawn amount,

= $13,000

Withdrawn limit percent,

= 10%

i.e.,

= 0.10

Withdrawal limit,

=
`0.10* 75000`

=
`7500` ($)

Now,

Excess withdrawn amount will be:

=
`Amount \ withdrawn-Annual \ withdrawal \ limit`

On substituting the values, we get

=
`13000-7500`

=
`5500` ($)

hence,

Sophia needs to pay the charges will be:

=
`Excess \ withdrawn \ amount* Surrender \ charges`

=
`5500* 0.07`

=
`385` ($)