Income Intermediate: Annuity Risks

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1.
An indexed annuity would be attractive to an investor who was pursuing the greatest guaranteed return possible.
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False. An indexed annuity would be attractive to many conservative investors, but could result in a return that was less than that of a guaranteed fixed annuity.
2.
Mortality risk can affect both the buyer of an annuity and the insurance company.
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True. Mortality risk, the risk associated with the "payments for life" feature of annuities, can affect both the annuitant and the insurance company.
3.
The value of an indexed annuity will decrease proportionately with the index to which it is tied.
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False. If the index has a loss for the year, the annuity will not decrease in value. Instead, it will either remain at the exact dollar amount at which it began the year, or it will be credited some nominal interest rate.
4.
In a fixed annuity, it is the _______ who bears the investment risk.
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Insurance company. The insurance company guarantees the fixed annuitant's principal and a minimum rate of return. As such, it is the insurance company that bears the investment risk of a fixed annuity.
5.
Fixed annuities carry another type of liquidity risk associated with loss of principal due to market fluctuations.
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False. Variable, not fixed, annuities carry the risk that at the time of liquidation, account values will be down due to market fluctuations.