Question

A 45 year-old woman won $100,000 in a scratch-off lottery ticket. She purchased an annuity that will pay her $1,500 per month beginning at age 60. Which of these annuities did this woman purchase?

- immediate variable annuity
- immediate annuity
- deferred fixed annuity
- variable annuity

Answer 1

The correct answer is option 3. The 45-year-old woman who won the lottery and purchased an annuity that pays out at age 60 has bought a deferred fixed annuity.

Step-by-step explanation:

The type of annuity the 45-year-old woman purchased is a deferred fixed annuity. In this financial arrangement, the investment is made in a lump sum, and the annuity payouts begin at a later, specified date, which in this case is when the woman turns 60. The difference between 'immediate' and 'deferred' annuities is based on the start time of payments. An 'immediate' annuity would start paying out immediately after the purchase, whereas a 'deferred' annuity, like in this woman’s case, begins at a future date.

Moreover, in a 'fixed' annuity, the payments are generally set at a fixed amount, like the $1,500 per month that this woman will receive, as opposed to a 'variable' annuity where payments can fluctuate based on the performance of the investment options.