ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A series of payments is made for annuities.
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Compound interest investments are for a shorter time period.
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The cash value of annuities can be figured using the compound interest table.
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Annuities involve a series of payments of usually differing amounts, whereas compound investments involve regular contributions of equal amounts.
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Detailed explanation-1: -Annuities involve a series of payments of usually differing amounts, whereas compound investments involve regular contributions of equal amounts.
Detailed explanation-2: -Annuities assume that you put money in the account on a regular schedule (every month, year, quarter, etc.) and let it sit there earning interest. Compound interest assumes that you put money in the account once and let it sit there earning interest.
Detailed explanation-3: -Annuities have no contribution limits and provide a guarantee on investment, principal protection, and a guaranteed income for life. Other investments have no guarantee on investment and can lose money and no guarantee of income in retirement.
Detailed explanation-4: -An annuity is a series of payments of equal size at equal intervals. Uniform payments and equal time intervals such as months, quarters or years, are the two characteristics that make a series of payments an annuity. So, a series of payments can be an annuity but not all series of payments are annuities.
Detailed explanation-5: -A fixed annuity guarantees payment of a set amount for the term of the agreement. It can’t go down (or up). A variable annuity fluctuates with the returns on the mutual funds it is invested in. Its value can go up (or down).