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Chapter 11: Problem 92

What is an annuity?

Short Answer

Expert verified
An annuity is a financial product that pays out a fixed stream of payments to an individual. They're created and sold by financial institutions and are used primarily as an income stream for retirees who want to secure a steady cash flow for a certain period.

Step by step solution

01

Define Annuity

An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. Annuities are created and sold by financial institutions, which accept and invest funds from individuals.
02

Explain the Utility of an Annuity

Annuities provide a stream of payments and are typically used for income during retirement. Annuities are attractive to investors who want to secure a steady cash flow for a certain period, typically for the rest of their life or another predetermined period.
03

Provide an Example of an Annuity

For example, suppose a retiree invests a certain amount in an annuity scheme provided by a financial institution. This annuity could then provide a steady cash flow of a fixed amount every month for the rest of the retiree's life.

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Most popular questions from this chapter

You are dealt one card from a 52-card deck. Find the probability that you are dealt a 2 or a 3

Explaining the Concepts Explain how to find the probability of an event not occurring. Give an example.

Use the formula for the value of an annuity to solve Exercises 77鈥�84. Round answers to the nearest dollar. To offer scholarship funds to children of employees, a company invests \(\$ 10,000\) at the end of every three months in an annuity that pays \(10.5 \%\) compounded quarterly. a. How much will the company have in scholarship funds at the end of ten years? b. Find the interest.

Exercises \(116-118\) will help you prepare for the material covered in the next section. In Exercises \(116-117\) show that $$1+2+3+\cdots+n=\frac{n(n+1)}{2}$$ is true for the given value of \(n\) $$ n=5: \text { Show that } 1+2+3+4+5=\frac{5(5+1)}{2} $$

Exercises \(116-118\) will help you prepare for the material covered in the next section. In Exercises \(116-117\) show that $$1+2+3+\cdots+n=\frac{n(n+1)}{2}$$ is true for the given value of \(n\) $$ n=3: \text { Show that } 1+2+3=\frac{3(3+1)}{2} $$
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