Hi, question is from Q4, April 2011. Solution states that if the option is taken, risk that return offered by the annuity is less than returns available if invested the money direct. If the option is taken, then the guarantee is biting, which means yields available are lower than priced for. Then how can it happen that higher return available if money was invested directly? Thanks.
Hi, question is from Q4, April 2011. Solution states that if the option is taken, risk that return offered by the annuity is less than returns available if invested the money direct. If the option is taken, then the guarantee is biting, which means yields available are lower than priced for. Then how can it happen that higher return available if money was invested directly? Thanks. The solution states that the policyholder runs the risk that the interest rates at maturity could be higher. In this case, he would have been better off buying the annuity directly from the open market because he would have to pay a lower lumpsum for the same annuity amount. However, he would have paid for the guaranteed annuity option through the higher charges. So, is this not a risk for the PH?
