If a life company quotes an annuity rate of 5% for Mary and applies a contract charge of €5 per annum on a €200,000 lump sum, what is Mary's annual annuity?

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Prepare for the Qualified Financial Adviser (QFA) Pensions Exam 2. Test your knowledge with flashcards and multiple choice questions. Review detailed explanations for each question and get ready to succeed!

Multiple Choice

If a life company quotes an annuity rate of 5% for Mary and applies a contract charge of €5 per annum on a €200,000 lump sum, what is Mary's annual annuity?

Explanation:
The main idea is that an annuity rate converts a lump sum into a yearly income, and any contract charges reduce that income. A 5% rate on €200,000 yields €10,000 per year. Subtract the annual contract charge of €5, and Mary receives €9,995 each year. That’s why the answer is €9,995 per annum.

The main idea is that an annuity rate converts a lump sum into a yearly income, and any contract charges reduce that income. A 5% rate on €200,000 yields €10,000 per year. Subtract the annual contract charge of €5, and Mary receives €9,995 each year. That’s why the answer is €9,995 per annum.

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