CARD Q055
A contract credits 80% of an index gain, subject to a 5% cap. The measured gain is 9%. Ignoring all other adjustments, what rate is credited?
- 5%
- 7.2%
- 4%
- 9%
5%
First apply participation: 9% × 80% = 7.2%. The 5% cap then limits the credited rate to 5%.
Why each choice is right or wrong
A. 5%
Correct. First apply participation: 9% × 80% = 7.2%. The 5% cap then limits the credited rate to 5%.
B. 7.2%
Incorrect. 7.2% is the participation-adjusted gain before the 5% cap.
C. 4%
Incorrect. 4% would apply the 80% factor to the cap, contrary to the stated sequence.
D. 9%
Incorrect. 9% ignores both participation and the cap.
Review the related terms
Use these lessons to revisit the concepts and try additional practice questions.