An annuity is a stream of equal cash flows after equal periodic intervals. A variable annuity is a stream of cash flows that may vary. Assume you have two projects, project A and project B with the following cash flows.
|
Period |
Project A |
Project B |
|
1 |
120000 |
140000 |
|
2 |
120000 |
140000 |
|
3 |
120000 |
140000 |
|
4 |
120000 |
140000 |
|
5 |
120000 |
180000 |
|
6 |
120000 |
180000 |
|
7 |
120000 |
180000 |
|
8 |
120000 |
90000 |
|
9 |
120000 |
90000 |
|
10 |
120000 |
90000 |
In the above table, Project A has a fixed annuity of $120,000 throughout the life of the project that says project A is stable. In project B the cash flows are in annuity format but the annuity is variable. It can be assumed that during the first 4 years of project B, the business was good. In the next three years, the business was booming and generated higher cash flows. In the last three years, the business faced a decline and cash flows declined.
Sophia purchased a variable annuity contract with a $25,
Shelly’s variable annuity has a mortality and expense risk charge at an
Your variable annuity charges administrative fees at an annual rate of 0
(a) Again there are two issues that must be addressed
Explain how buying a variable annuity is much like investing in a
How do variable annuity returns generally compare to mutual fund returns?
2. The amount of money that is present in an ordinary
Your variable annuity charges administrative fees at an annual rate of 0
Sophia purchased a variable annuity contract with a $25,000
Shelly’s variable annuity has a mortality and expense risk charge at an
