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SIE Understanding Products and Their Risks Practice Question 57

Question: 57

An equity indexed contract holder has chosen a minimum guaranteed rate of 4%, along with a limited upside potential of 80% of the increase in the S&P Index, up to a maximum of 8%. If the S&P Index decreases by 7%, by what percentage would the contract be adjusted?

Correct Answer: C

Explanation:

C: Choice C, 4% is correct because, even though the S&P Index decreased, the guaranteed minimum is 4%. Choice A -5% is incorrect because, even though the S&P Index decreased, the guaranteed minimum is 4%. Choice B -4% is incorrect because, even though the S&P Index decreased, the guaranteed minimum is 4%. Choice D 5% is incorrect because when the S&P Index decreases, the contract is credit with the guaranteed minimum, which in this case is 4%.

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