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Average Score: 100%

An immediate annuity with quarterly payments will begin making payments

Rationale

A quarterly immediate annuity will begin making payments 3 months after the annuity is purchased.

An immediate annuity is designed to start payments right away, typically the next payment period after the purchase. Given that payments are made quarterly, this means the first payment occurs three months after the purchase of the annuity.

A (1 month after the annuity is purchased.) YOUR ANSWER

This option suggests that payments would begin one month after purchase, which is incorrect for a quarterly payment schedule. Since quarterly payments occur every three months, the first payment cannot logically commence until the first quarter has elapsed.

B (3 months after the annuity is purchased.) CORRECT

This choice accurately reflects the nature of a quarterly immediate annuity, where the first payment is issued at the end of the first quarter, precisely three months after the purchase. This timing aligns with the definition of immediate annuities and their payment structure.

C (6 months after the annuity is purchased.) YOUR ANSWER

Selecting this option implies that payments would not commence until two quarters have passed. However, immediate annuities are intended to start payments sooner than this, making this choice incorrect.

D (1 year after the annuity is purchased.) YOUR ANSWER

This choice indicates that payments would start after a full year, which contradicts the immediate nature of the annuity. An immediate annuity with quarterly payments begins making payments much sooner than a year after the purchase.

Conclusion

Immediate annuities are structured to provide payments shortly after purchase, specifically aligned with their payment frequency. In the case of a quarterly immediate annuity, the payments will begin three months after the purchase. Understanding the timing of these payments is crucial for effective financial planning and management.

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