Securities Industry Essentials (SIE) ExamUnderstanding Products and Their RisksEasy
A client is interested in an investment that offers a guaranteed return of principal, participates in market gains, and provides a guaranteed minimum interest rate. Which of the following products best fits this description?
- AMutual Fund
- BEquity-Indexed Annuity
- CCertificate of Deposit (CD)
- DVariable Annuity
Show answer & explanationAnswer & explanation
Correct answer: B. Equity-Indexed Annuity
An Equity-Indexed Annuity (EIA) is a type of annuity that offers a guaranteed return of principal, a minimum interest rate, and the potential to earn additional interest based on the performance of a stock market index.
Why the other options are wrong
- A. A mutual fund does not guarantee principal or a minimum return; its value is subject to market fluctuations.
- C. A CD offers a guaranteed return and principal but does not participate in market gains beyond its fixed interest rate.
- D. A variable annuity does not guarantee principal or a minimum interest rate, as its value fluctuates with subaccount performance.
Equity-Indexed Annuity (EIA)
A type of annuity that offers a guaranteed minimum return, principal protection, and potential interest linked to a market index.
- Guaranteed return of principal
- Guaranteed minimum interest rate
- Participation in market index gains
- Tax-deferred growth
Memory trick: EIAs: Equity Index Assurance, Principal Protection, Market Gains.