FIN 3310 Ch 14

Gerald paid $45,000 for an immediate annuity. Gerald's insurer will pay him $500 per month for as long as he lives. Gerald's life expectancy is 15 years. For tax purposes, what is Gerald's exclusion ratio for this annuity?

50.0%

Which of the following statements is (are) true with respect to the Roth IRA? 1. Roth IRA contributions are tax deductible. 2. Roth IRA contributions accumulate income tax free and qualified distributions are not taxable if certain requirements are met.

II only

All of the following statements about traditional IRAs are true EXCEPT

Traditional IRA contributions are always tax deductible.

To which of the following distributions from a traditional Individual Retirement Account (IRA) before age 59 1/2 does the 10 percent penalty tax apply?

a distribution in the form of a lump-sum payment

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

accumulation units.

Which of the following statements is (are) true regarding annuities? 1. Insurers pool the risk of excessive longevity when offering life annuities. 2. An annuity can provide a lifetime income that cannot be outlived.

both I and II

Variable annuity owners pay a number of fees and expenses. One expense that is levied is forfeiture of a percentage of the account balance if the annuity is terminated in the early years. This fee is typically seven percent of the account balance in the first year, declining one percent per year for the next six years. This fee is called the

surrender charge.

Some insurers offer a fixed, deferred annuity that allows the annuity owner to participate in the growth of the stock market and also provides downside protection against the loss of principal and prior interest earnings if the annuity is held to term. Such an annuity is called a(n)

equity-indexed annuity.

Bob and Jasmine Davis are a married couple who are both 67 years old. Bob and Jasmine purchased an annuity covering both of their lives. The settlement option will provide payments until Bob and Jasmine are both deceased. The settlement option Bob and Jasmine selected is a(n)

joint-and-survivor annuity option

Annette purchased a life annuity at age 65 and started to receive monthly payments from the insurer. Annette's monthly payments consist of all of the following EXECPT

life insurance proceeds from annuitants who live too long