The following example will illustrate how the various methods of computing the amount credited to a contract might operate.
Assumptions:
- Initial annuity Investment: $50,000
- Date of annuity Investment: May 30th, Year 0
- Market Index, May 30th, Year 0: 1,422
- Market Index, May 30th, Year 1: 1,600
- Market Index, May 30th, Year 2: 1,300
- Market Index, May 30th, Year 3: 1,940
- Market Index, May 30th, Year 4: 2,220
- Market Index, May 30th, Year 5: 1,700
Example 1:
Annual Reset with 100 % Participation and 16% Cap Rate
Year 1:
1,600-1,422 = 178; 178/1,422 = 12.5% gain
$50,000 x 1.125 = $56,250
Year 2:
1,300-1,600 = negative number = market loss
$56,250 (no drop in value)
Year 3:
1,940-1,300 = 640; 640/1,300 = 49.2% gain;
$56,250 x 1.16 = $65,250
Year 4:
2,220-1,940 = 280; 280/1940 = 14.4% gain;
2,220-1,940 = 280; 280/1940 = 14.4% gain
Year 5:
1,700-2,220 = negative number = market loss;
$65,250 x 1.144 = $74,646
Example 2:
Point-To-Point with 90% Participation Rate and No Cap Rate
Year 5:
1,700 (end) — (1,422 (beginning) = 278
278/1,422 = 19.5% gain
19.5% x 90% x $50,000 = $8,775
$50,000 + $8,775 = $58,775
$58,775
Example 3:
Annual High-Water Mark w/ Look-Back, 100% Participation and No Cap
Year 5:
2,220 (peak) — (1,422 (beginning) = 798
798/1,422=56.1%
$50,000 x 1.561% = $78,050
$78,050
Summary
Annual reset, 100% participation, 16% cap rate:
$74,646
Point-to-point, 90% participation, no cap rate:
$58,775
Point-to-point, 90% participation, no cap rate:
$78,050
