AD Banker Comprehensive Practice Exam

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Enhance your exam readiness with the AD Banker Comprehensive Exam guide. Includes flashcards and multiple-choice questions with explanations.

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Which type of annuity would be most negatively impacted by a stock market decline?

Fixed
Variable
Indexed
Market adjusted annuity

The correct answer is: Variable

A variable annuity would be most negatively impacted by a stock market decline because its performance is directly tied to the performance of underlying investment options, which typically include stocks and mutual funds. When the stock market experiences a downturn, the value of these investments can decrease significantly, leading to a reduced account value or lower payouts for the annuity holder. In contrast, a fixed annuity offers a guaranteed interest rate, providing stability regardless of market performance. Indexed annuities link returns to a stock market index but include mechanisms to protect against losses, thus mitigating the impact of market declines. Similarly, market-adjusted annuities also incorporate safeguards or adjustments that help in maintaining some level of income regardless of market volatility. Therefore, the unique structure of variable annuities makes them the most vulnerable to fluctuations associated with the stock market.