Question

Sophia purchased a variable annuity contract with a purchase payment of $70,000. Surrender charges begin with 9 percent in the first year and decline by 1 percent each year. In addition, Sophia can withdraw 12 percent of her contract value each year without paying surrender charges. In the first year, Sophia needed to withdraw $13,700. 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

$477

Step-by-step explanation:

Calculation to determine the surrender charge Sophia had to pay

Using this formula

Surrender charge = [Withdraw all amount - (Free withdraw all % x Account value)] x Surrender charge

Let plug in the formula

Surrender charge= [$13,700 - (0.12 x $70,000)] x 0.09

Surrender charge= ($13,700-$8,400)×0.09

Surrender charge=$5,300×0.09

Surrender charge=$477

Therefore the surrender charge Sophia had to pay is $477