Question

Sophia purchased a variable annuity contract with a purchase payment of $115,000. Surrender charges begin with 8 percent in the first year and decline by 1 percent each year. In addition, Sophia can withdraw 11 percent of her contract value each year without paying surrender charges. In the first year, Sophia needed to withdraw $19,750. Assume that the contract value has not increased or decreased because of investment performance. What was the surrender charge Sophia had to pay

Answer 1

Surrender charge = $568

Step-by-step explanation:

The computation of charge is shown below:-

Surrender amount = Sophia withdraw × Percentage charges ÷ 100

= $19,750 × 8 ÷ 100

= $1,580

11% withdraws in first year = $115,000 × 11%

= $12,650

Balance withdrawal amount = (Sophia withdraw - Withdrawal amount) × Percentage charges

= ($19,750 - $12,650) × 8%

= $568

Surrender charge = $568