# How to Calculate Market Value Adjustment

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Market value adjustments (MVA) deal with any and all types of annuities. An annuity refers to any capital investment that pays in regular, fixed amounts. It is often used with reference to insurance policies paying the beneficiary fixed amounts, but it can refer to any investment. The amount paid is regular and fixed; it cannot vary with interest rates or other key indicators.

## Market Value Adjustment Triggers

There are a couple things that can trigger or cause a market value adjustment on your annuity. If you pull more than allowed from your annuity, you will cause a market value adjustment or if you decide to surrender your annuity during the allotted time frame without penalty. These two instances will make your insurance company that holds the annuity to calculate the MVA on your account.

## Interest Rate at Purchase

Find the interest rate that was relevant at the time you bought the investment. This is the most important single variable because it needs to be compared with the interest rate that is relevant now. The difference between the two is how to determine what you, the investor, will walk away with.

## Get Your Present Interest Rate

Find the present interest rate that will be applied to your policy or investment. An MVA is only done when you withdraw money out of the investment early. Because the withdraw is sometimes unexpected, the firm with which you have placed the investment must coordinate how it will pay you, and from what.

The point is that the firm must coordinate its underlying investments with the fact that a) you are withdrawing money from it and b) that you need to be paid a lump sum now.

## Compare Interest Rates

Compare the differences between the two rates to determine whether a profit or loss will be made. If the rates are identical, then the money you get will be exactly the amount you initially invested. Outside of financial emergencies, the only reason you would take money out of an investment early is to take advantage of a fall in rates.

## Find the Present Value

Find the present value of the investment relative to the change in rates. This is the mode of calculating its present value. MVA treats the annuity like bond value: when a bond is bought at 4 percent, and rates fall to 3.5 percent, the bond is now worth more. This is because no one wants the lower 2.5 paying rate if there might be 4 percent bonds on the market.

Holding the 4 percent bond makes that paper more valuable than the lower bonds being offered. The MVA does the exact same thing, and the calculations are identical.

## Do the Final Math

Subtract, or add, the value of the investment from the demand-based new value. Whatever the change in interest rates entails, it must be applied to the amount initially invested. If the new rate is lower, then you will add the new value. If it is higher, then you will subtract the new figure, and take a loss on the withdrawal, not including the early withdraw penalties and fees.

The values you use for the calculations are not inherent in the annuity, but must be compared with current demand for paper on the money markets. If markets are down, a change in interest rates might not mean much to the investor. If bond volume is high, even a slight alteration in the present rate can mean a large sum of money.