Simon has purchased a fixed immediate annuity. His payment amount will be dependent upon principal, interest, and the contract's

• A. payout frequency
• B. income period
• C. annuitant age
• D. premium amount

Answer: (B)

For a fixed immediate annuity, the payment amount comes from three ingredients: the principal funded into the contract, the interest rate assumed to support the payments, and the income period over which those payments are made. If you lengthen the income period, you’re spreading that same principal over more payments, so each payment is smaller. Shortening the income period makes each payment larger. Payout frequency can change how many payments you receive in a year, but it doesn’t change the base amount determined by principal and rate. Age of the annuitant affects whether payments are for life or for a guaranteed period, not the fixed payment size under a standard fixed immediate annuity. So the income period is what governs the payment amount.