Question 1

Under an equity-indexed annuity,what name is given to the percentage increase in the stock index that is credited to the contract?

Accepted Answer

A) the expense rate 
B) the exclusion ratio 
C) the indexing rate 
D) the participation rate 
A) the expense rate 
B) the exclusion ratio 
C) the indexing rate 
D) the participation rate

Question 2

Which of the following statements is (are)true with regard to IRAs?
I.Contribution limits are higher for workers aged 50 and older.
II.A spouse who does not work outside of the home may make a fully deductible contribution to a traditional IRA even if his or her spouse is covered by a retirement plan at work.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 3

Which of the following statements is (are)true with regard to the inflation-indexed annuity option?
I.The initial monthly payment is lower than the initial payment a fixed annuity would have provided if purchased at the same age.
II.Periodic payments to the annuitant are adjusted for inflation.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 4

Which of the following statements is (are)true regarding the Roth IRA?
I.Roth IRA contributions are tax deductible.
II.Roth IRA investment income accumulates income-tax free.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 5

An immediate life annuity offers all of the following benefits EXCEPT

Accepted Answer

A) Interest income can be earned during the long deferral period until annuity payments begin. 
B) Simplicity for the purchaser as he or she does not have to manage investment funds. 
C) Security for the purchaser as stable lifetime income that cannot be outlived is provided. 
D) The principal is safe as the funds are guaranteed by the assets of the insurer. 
A) Interest income can be earned during the long deferral period until annuity payments begin. 
B) Simplicity for the purchaser as he or she does not have to manage investment funds. 
C) Security for the purchaser as stable lifetime income that cannot be outlived is provided. 
D) The principal is safe as the funds are guaranteed by the assets of the insurer.

Question 6

Which of the following statements regarding the taxation of individual annuities is (are)true?
I.The exclusion ratio is the percentage of the annuity income that is taxable.
II.After the net cost of the annuity has been paid to the annuitant,the total annuity payment is taxable.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 7

Which of the following statements about converting a traditional IRA to a Roth IRA is (are)true?
I.Such conversions can be done with no income tax consequences.
II.Qualified distributions from a Roth IRA after a conversion are received tax-free.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 8

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).Assume that Juanita receives 12 monthly payments of $500 the first year.How much taxable income must she report?

Accepted Answer

A) $3,000 
B) $4,000 
C) $4,500 
D) $6,000 
A) $3,000 
B) $4,000 
C) $4,500 
D) $6,000

Question 9

Which of the following statements is true with regard to the adequacy of IRA funds during retirement?
I.To assure lifetime income,the IRA funds can be used to purchase a life annuity.
II.The duration of IRA benefit payments depends on the rate of return earned on the invested assets after retirement and the withdrawal rate.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) Neither I nor II

Question 10

Which of the following statements regarding individual retirement account s (IRAs)is (are)true?
I.If an individual's only income during the year is from investments,he or she cannot make an IRA contribution.
II.The funds in the IRA can be used to purchase life insurance on the owner.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 11

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).What is the exclusion ratio in this case?

Accepted Answer

A) 33.33 percent 
B) 40.00 percent 
C) 50.00 percent 
D) 66.67 percent 
A) 33.33 percent 
B) 40.00 percent 
C) 50.00 percent 
D) 66.67 percent

Question 12

Insurers offering variable annuities charge a number of fees and expenses.One category of fees and expenses is charged to cover the cost of record keeping,paperwork,and periodic reports to annuity owners.This expense is the

Accepted Answer

A) investment management charge. 
B) surrender charge. 
C) administrative charge. 
D) front-end load. 
A) investment management charge. 
B) surrender charge. 
C) administrative charge. 
D) front-end load.

Question 13

Which of the following statements about the withdrawal of funds from a traditional IRA is true?

Accepted Answer

A) Withdrawals of deductible contributions between the ages of 59.5 and 65 are subject to a tax penalty unless they are withdrawn because of specified circumstances such as death or long-term disability. 
B) Amounts attributable to nondeductible contributions are fully taxable as ordinary income when received. 
C) Withdrawals must begin no later than April 1 of the year following the calendar year in which an individual attains age 70.5. 
D) Withdrawals must be taken in the form of an annuity. 
A) Withdrawals of deductible contributions between the ages of 59.5 and 65 are subject to a tax penalty unless they are withdrawn because of specified circumstances such as death or long-term disability. 
B) Amounts attributable to nondeductible contributions are fully taxable as ordinary income when received. 
C) Withdrawals must begin no later than April 1 of the year following the calendar year in which an individual attains age 70.5. 
D) Withdrawals must be taken in the form of an annuity.

Question 14

All of the following are permissible IRA investments EXCEPT

Accepted Answer

A) mutual funds. 
B) life insurance. 
C) individual stocks. 
D) bonds. 
A) mutual funds. 
B) life insurance. 
C) individual stocks. 
D) bonds.

Question 15

During the funding period,the premiums paid for a variable annuity are used to purchase

Accepted Answer

A) annuity units. 
B) immediate participation shares. 
C) mutual fund shares. 
D) accumulation units. 
A) annuity units. 
B) immediate participation shares. 
C) mutual fund shares. 
D) accumulation units.

Question 16

Which of the following statements is (are)true regarding the taxation of distributions from individual annuities?
I.Individual annuity distributions are never taxable.
II.Once the annuitant has recovered the premiums he or she paid for the annuity,the entire annuity distribution is taxable.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 17

The fundamental purpose of a variable annuity is

Accepted Answer

A) to provide funding flexibility to the purchaser. 
B) to provide a hedge against inflation. 
C) to fund the purchase of cash value life insurance. 
D) to guarantee a fixed-dollar benefit throughout retirement. 
A) to provide funding flexibility to the purchaser. 
B) to provide a hedge against inflation. 
C) to fund the purchase of cash value life insurance. 
D) to guarantee a fixed-dollar benefit throughout retirement.

Question 18

Which of the following statements is true concerning traditional and Roth IRAs?

Accepted Answer

A) The investment income portion of Roth IRA distributions must be reported as taxable income. 
B) Roth IRA contributions are tax deductible. 
C) There are minimum distribution requirements for traditional IRAs. 
D) There are no limits on the tax deductibility of traditional IRA contributions once the account owner has reached age 50. 
A) The investment income portion of Roth IRA distributions must be reported as taxable income. 
B) Roth IRA contributions are tax deductible. 
C) There are minimum distribution requirements for traditional IRAs. 
D) There are no limits on the tax deductibility of traditional IRA contributions once the account owner has reached age 50.

Question 19

Insurers offering variable annuities charge a number of expenses.One category of expenses is to pay the fund manager and to pay brokerage fees.This expense is the

Accepted Answer

A) investment management charge. 
B) administrative charge. 
C) surrender charge. 
D) front-end load. 
A) investment management charge. 
B) administrative charge. 
C) surrender charge. 
D) front-end load.

Question 20

Bridget started to fund a variable annuity.Three years later,she experienced financial difficulty.She called her agent and cancelled the contract.The insurer returned all but 4 percent of the account balance.The 4 percent kept by the insurer is a(n)

Accepted Answer

A) account administration fee. 
B) investment management fee. 
C) front-end load. 
D) surrender charge. 
A) account administration fee. 
B) investment management fee. 
C) front-end load. 
D) surrender charge.

Exam 14: Annuities and Individual Retirement Accounts

Under an equity-indexed annuity,what name is given to the percentage increase in the stock index that is credited to the contract?

Which of the following statements is (are)true with regard to the inflation-indexed annuity option? I.The initial monthly payment is lower than the initial payment a fixed annuity would have provided if purchased at the same age. II.Periodic payments to the annuitant are adjusted for inflation.

Which of the following statements is (are)true regarding the Roth IRA? I.Roth IRA contributions are tax deductible. II.Roth IRA investment income accumulates income-tax free.

An immediate life annuity offers all of the following benefits EXCEPT

Which of the following statements regarding the taxation of individual annuities is (are)true? I.The exclusion ratio is the percentage of the annuity income that is taxable. II.After the net cost of the annuity has been paid to the annuitant,the total annuity payment is taxable.

Which of the following statements about converting a traditional IRA to a Roth IRA is (are)true? I.Such conversions can be done with no income tax consequences. II.Qualified distributions from a Roth IRA after a conversion are received tax-free.

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).Assume that Juanita receives 12 monthly payments of $500 the first year.How much taxable income must she report?

Which of the following statements regarding individual retirement account s (IRAs)is (are)true? I.If an individual's only income during the year is from investments,he or she cannot make an IRA contribution. II.The funds in the IRA can be used to purchase life insurance on the owner.

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity.Juanita will receive $500 per month from the insurer,and her life expectancy is 15 years (180 months).What is the exclusion ratio in this case?

Insurers offering variable annuities charge a number of fees and expenses.One category of fees and expenses is charged to cover the cost of record keeping,paperwork,and periodic reports to annuity owners.This expense is the

Which of the following statements about the withdrawal of funds from a traditional IRA is true?

All of the following are permissible IRA investments EXCEPT

During the funding period,the premiums paid for a variable annuity are used to purchase

Which of the following statements is (are)true regarding the taxation of distributions from individual annuities? I.Individual annuity distributions are never taxable. II.Once the annuitant has recovered the premiums he or she paid for the annuity,the entire annuity distribution is taxable.

The fundamental purpose of a variable annuity is

Which of the following statements is true concerning traditional and Roth IRAs?

Insurers offering variable annuities charge a number of expenses.One category of expenses is to pay the fund manager and to pay brokerage fees.This expense is the

Bridget started to fund a variable annuity.Three years later,she experienced financial difficulty.She called her agent and cancelled the contract.The insurer returned all but 4 percent of the account balance.The 4 percent kept by the insurer is a(n)

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