Which of the Following Statements About Annuity Contracts Is True

question 38

Multiple Choice

Which of the following statements about annuity contracts is true?

• A)Annuity contracts provide a fixed income stream from the premiums paid.
• B)Payments received from an annuity contract are tax-exempt.
• C)Payments received from an annuity contract are fully taxable as ordinary income.
• D)Payments received from an annuity contract are fully taxable as capital gain.

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Definitions:

Ordinary Annuity

A sequence of identical disbursements occurring at consecutive periods' conclusion, spanning a determined duration.

Infinite Stream

An endless sequence of cash flows, often used in the analysis of investments or financial models.

Unequal Payments

Payments that vary in amount over time, as opposed to equal or fixed payments.

Compounded Monthly

The process of adding interest to the principal sum of a loan or deposit, where the amount of the interest is calculated monthly and then added to the sum, causing interest on interest.