Multiple Choice
T purchased a \$100{,}000$ single-premium bond as an investment. Which of the following best describes how this investment should be initially recorded on the balance sheet under U.S. GAAP?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
Who assumes the investment risk in a variable annuity?
A
The insurance company
B
The annuitant's employer
C
The annuitant (investor)
D
The federal government
Verified step by step guidance1
Understand the concept of a variable annuity: A variable annuity is a type of investment product offered by insurance companies that allows the investor (annuitant) to allocate funds into various investment options, such as mutual funds. The returns are not guaranteed and depend on the performance of the chosen investments.
Identify the key parties involved: In a variable annuity, the primary parties are the insurance company (which provides the product), the annuitant (the investor who purchases the annuity), and sometimes the annuitant's employer (if the annuity is part of a retirement plan).
Clarify the role of the annuitant: The annuitant assumes the investment risk because the returns on the variable annuity depend on the performance of the underlying investments. If the investments perform poorly, the annuitant may experience losses or lower returns.
Eliminate incorrect options: The insurance company does not assume the investment risk in a variable annuity; it only provides the product and may charge fees. The federal government does not assume the risk either, as it is not involved in the investment performance. The annuitant's employer may facilitate the annuity but does not bear the investment risk.
Conclude that the correct answer is the annuitant (investor), as they are the one directly impacted by the performance of the investments in the variable annuity.
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