Lindsey Life Insurance Company has an equity indexed annuity called LLIC 12 - 0. For an investment of $1,000 - the investor is guaranteed the following: 1. If S&P500 returns are positive for a given year, the investor's account will be credited the return with a cap of 12% at the end of the year 2. If S&P 500 returns are negative for a given year, the investor's account will still be credited 0% at the end of the year Danielle decides to invest $1,000 with LLIC on 01/01/2020 when the S&P500 is also trading at $1,000. In order to manage the risk of the annuity, LLIC decides to: 1. Invest Danielle's $1,000 in safe risk free US Government Securities maturing in one year with a interest rate of 1% 2. Buy a Call option from your professor (who has a very bad Credit Score of 500) with a strike price of $1,000. Assume the premium for the call option is $10 Consider the following scenarios: Scenario 1: In one year S&P500 finishes at a value of $1,100 1. What was the return on S&P500 for the year? I Select 1 2. What should Danielle's account balance be at the end of the year? Select 3. How much interest will the investment in US Government Securities make? Select 1 4. What was the net gain or loss on the call (incl. the premium)? Select 1 5. What was the net gain or loss for the insurance company? Your answer should be: answer to number 4 + answer to 3 - (answer to 2 - 1000) [ Select Scenario 2: In one year S&P500 finishes at a value of $900 1. What was the return on S&P500 for the year? Select 1 2. What should Danielle's account balance be at the end of the year? Select 1 3. How much interest will the investment in US Government Securities make? [ Select 1 4. What was the net gain or loss on the call (incl. the premium)? I Select 1 5. What was the net gain or loss for the insurance company? Your answer should be: answer to number 4 + answer to 3 Select Scenario 3: In one year S&P500 finishes at a value of $1,150 1. What was the return on S&P500 for the year? Select 2. What should Danielle's account balance be at the end of the year? Select 1 3. How much interest will the investment in US Government Securities make? Select 1 4. What was the net gain or loss on the call (incl. the premium)? [ Select 1 5. What was the net gain or loss for the insurance company? Your answer should be: answer to number 4 + answer to 3 - (answer to 2 - 1000) [ Select 1 Lindsey Life Insurance Company has an equity indexed annuity called LLIC 12 - 0. For an investment of $1,000 - the investor is guaranteed the following: 1. If S&P500 returns are positive for a given year, the investor's account will be credited the return with a cap of 12% at the end of the year 2. If S&P 500 returns are negative for a given year, the investor's account will still be credited 0% at the end of the year Danielle decides to invest $1,000 with LLIC on 01/01/2020 when the S&P500 is also trading at $1,000. In order to manage the risk of the annuity, LLIC decides to: 1. Invest Danielle's $1,000 in safe risk free US Government Securities maturing in one year with a interest rate of 1% 2. Buy a Call option from your professor (who has a very bad Credit Score of 500) with a strike price of $1,000. Assume the premium for the call option is $10 Consider the following scenarios: Scenario 1: In one year S&P500 finishes at a value of $1,100 1. What was the return on S&P500 for the year? I Select 1 2. What should Danielle's account balance be at the end of the year? Select 3. How much interest will the investment in US Government Securities make? Select 1 4. What was the net gain or loss on the call (incl. the premium)? Select 1 5. What was the net gain or loss for the insurance company? Your answer should be: answer to number 4 + answer to 3 - (answer to 2 - 1000) [ Select Scenario 2: In one year S&P500 finishes at a value of $900 1. What was the return on S&P500 for the year? Select 1 2. What should Danielle's account balance be at the end of the year? Select 1 3. How much interest will the investment in US Government Securities make? [ Select 1 4. What was the net gain or loss on the call (incl. the premium)? I Select 1 5. What was the net gain or loss for the insurance company? Your answer should be: answer to number 4 + answer to 3 Select Scenario 3: In one year S&P500 finishes at a value of $1,150 1. What was the return on S&P500 for the year? Select 2. What should Danielle's account balance be at the end of the year? Select 1 3. How much interest will the investment in US Government Securities make? Select 1 4. What was the net gain or loss on the call (incl. the premium)? [ Select 1 5. What was the net gain or loss for the insurance company? Your answer should be: answer to number 4 + answer to 3 - (answer to 2 - 1000) [ Select 1
