PSI Life Exam Practice Test

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Prepare for the PSI Life Exam Test. Study using interactive flashcards and multiple-choice questions, each with detailed hints and explanations. Get exam-ready efficiently!

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Market value adjustments in fixed annuities are primarily influenced by what factor?

Investment performance
Interest rates
Mortality rates
Inflation rates

The correct answer is: Interest rates

Market value adjustments in fixed annuities are primarily influenced by interest rates because these adjustments are designed to reflect changes in market conditions, particularly fluctuations in interest rates over time. When interest rates rise, the value of existing annuities tends to decrease, and vice versa; this is due to the fact that newer annuities may offer more attractive rates. The market value adjustment allows the issuer to align the surrender value with current interest rates to maintain the financial integrity of the product. While investment performance, mortality rates, and inflation rates play integral roles in the overall functioning of insurance products and annuities, they do not directly influence the market value adjustments applied to fixed annuities. Investment performance is more relevant to variable annuities, as it directly affects the account values; mortality rates are significant in terms of pricing the annuity but have less impact on the market value itself; and inflation rates can affect the purchasing power of the payouts but do not directly alter the adjustments made to market values linked to interest rates.