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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Products

Caselet: Mrs. Rao, aged 62, buys an immediate annuity for Rs 20,00,000 that pays Rs 1,50,000 per year, with return of purchase price to the nominee on death. Which annuity type is this, and what is the simple annual annuity rate?

This is a life annuity with return of purchase price, with an annuity rate of 7.5%. The payout of Rs 1,50,000 on Rs 20,00,000 gives 7.5%, and the nominee gets the purchase price back on death.

  1. AAnnuity for life with return of purchase price; 7.5%Correct
  2. BLife annuity without return of purchase price; 7.5%
  3. CAnnuity certain for 10 years; 10%
  4. DDeferred annuity; 7.5%

Explanation

Annual payout divided by purchase price is 1,50,000 / 20,00,000 = 7.5%. The return of the purchase price to the nominee on death makes it a life annuity with return of purchase price. It is immediate, not deferred, and no fixed certain period is stated.

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