SIE Understanding Products and Their Risks Question 57: Answer and Explanation

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?

• A. -5%
• B. -4%
• C. 4%
• D. 5%

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%.