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Annuity

An annuity is a financial product that provides regular payments over time, typically through a contract with an insurance company. There are several types of annuities, including fixed, variable, indexed, immediate, and deferred, each with its own advantages and disadvantages. The future value of an annuity can be calculated based on whether payments are made at the beginning or end of each period.

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9 views3 pages

Annuity

An annuity is a financial product that provides regular payments over time, typically through a contract with an insurance company. There are several types of annuities, including fixed, variable, indexed, immediate, and deferred, each with its own advantages and disadvantages. The future value of an annuity can be calculated based on whether payments are made at the beginning or end of each period.

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temple of praise sisters
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ANNUITY

An annuity is a financial product that provides a series of regular payments over a set period of time.
annuities are contracts between an individual and an insurance company.you pay them either a lump
sum or multiple payments and in return the insurance company pays out a fixed variable income stream
right away or at some time in the future in exchange for premiums you have paid

TYPES OF ANNUITIES

1. Fixed Annuity: A fixed annuity is a type of annuity that provides a guaranteed fixed rate of return on
your investment, typically for a set period of time.

2. Variable Annuity: A variable annuity is a type of annuity that allows you to invest in different assets,
such as stocks, bonds, or mutual funds, and earns returns based on the performance of those
investments.

3. Indexed Annuity: An indexed annuity is a type of annuity that earns interest based on the
performance of a specific stock market index, such as the S&P 500.

4. Immediate Annuity:An immediate annuity is a type of annuity that provides a guaranteed income
stream for a set period or for life, starting immediately after purchase.

5. Deferred Annuity:A deferred annuity is a type of annuity that allows you to delay receiving payments
until a later date, such as retirement.

ADVANTAGES AND DISADVANTAGES

Fixed Annuity

Advantages:

a. Predictable income
b. Low risk

Disadvantages:

- Returns may be lower than other investments

Variable Annuity

Advantages:

a. Potential for higher returns


b. Flexibility

Disadvantages:

a. Higher risk
b. Fees can be high

INDEXED ANNUITY

Advantages:

a. Potential for higher returns


b. Some protection from market downturns

Disadvantages:

a. Returns may be capped


b. Fees can be high

IMMEDIATE ANNUITY

Advantages:

a. Predictable income
b. Can provide lifetime income

Disadvantages:

Requires lump sum payment upfront


DEFERRED ANNUITY

Advantages:

a. Can provide tax-deferred growth


b. Flexibility

Disadvantages:

May face penalties for early withdrawal

FUTURE VALUE OF AN ANNUITY


An annuity is a series of payment made at regular intervals, there are two types

There are two ways to determine the future value of an annuity

a. Payments made at the end of each pay period


b. Payments made at the beginning of each period.

Payment made at the end of each pay period ( ordinary annuity)

A.Payment is made at the end of each pay period e.g month, year

B. the payment earn interest and the interest is added to the principal at the end of each period.

Payments made at the beginning of each period ( Annuity Due)

A. Payment is made at the beginning of each period ( month, year)

B. The payment and interest and the interest added to the principal at the end of each period.

if payments are made at the beginning of each. You will earn more interest over time.

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