An equity-indexed annuity's return over time is based on which of the following?

An equity-indexed annuity's return over time is derived from a combination of factors, primarily focusing on its linkage to a specific stock market index. The correct choice emphasizes that the return is determined by the greater of the participation rate or a guaranteed minimum return.

This means that the annuity can provide a return that is influenced by how the chosen index performs while also ensuring that the investor benefits from a minimum return level, which protects them against significant market downturns. If the index performs well, the annuity allows for participation in those gains up to a certain limit, defined by the participation rate. If the market performs poorly, the guaranteed minimum protects the annuity holder from loss, ensuring they still receive some positive return.

The other choices do not accurately capture how equity-indexed annuities function. The average return of the underlying index or performance based solely on stock market movement does not encompass the guaranteed minimum aspect, which is crucial in providing a safety net. Additionally, the concept of total market gain without limits does not reflect the structured nature of equity-indexed annuities, which involve caps and participation rates to manage risks and returns effectively.