FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProcessing Customer Orders and TransactionsMedium
A client decides to redeem shares from a variable annuity contract. The contract's Net Asset Value (NAV) is calculated once daily at 4:00 PM ET. If the client submits a redemption request at 1:00 PM ET on a Tuesday, what price will be used for the redemption?
- AThe NAV calculated at 4:00 PM ET on Monday.
- BThe NAV from the previous business day's close.
- CThe NAV calculated at 4:00 PM ET on Tuesday.
- DThe NAV calculated at 4:00 PM ET on Wednesday.
Show answer & explanationAnswer & explanation
Correct answer: C. The NAV calculated at 4:00 PM ET on Tuesday.
Variable annuity redemptions, like mutual fund transactions, are subject to forward pricing. The redemption will be processed at the next calculated NAV after the request is received. Since the request was before the 4:00 PM ET cut-off on Tuesday, that day's NAV will be used.
Why the other options are wrong
- A. This is incorrect; forward pricing means the next calculated NAV, not a past NAV.
- B. This is incorrect; the redemption uses the next calculated NAV, not a prior day's closing price.
- D. This would only apply if the request was made after Tuesday's 4:00 PM ET cut-off.
Variable Annuity Redemption Pricing
Redemptions from variable annuities are priced using the next calculated Net Asset Value (NAV) of the underlying subaccounts after the redemption request is received.
- Subject to forward pricing, similar to mutual funds.
- NAV is typically calculated once per business day.
- Cut-off times are critical for determining applicable NAV.
Memory trick: Annuity exits use the NEXT NAV, just like mutual funds.