Simon purchased a fixed immediate annuity. What will his payment amount depend on?

In the context of a fixed immediate annuity, the payment amount that Simon will receive is influenced by several key factors, specifically the income period, the principal amount invested, and the interest rate applied to that principal.

The income period refers to how long Simon has chosen to receive payments from the annuity, which can be set for a specific number of years or for the lifetime of the annuitant. The principal is the initial amount Simon paid to purchase the annuity, and this value determines the base from which payments are calculated. Finally, the interest rate that the insurance company guarantees affects how much income Simon will receive; a higher interest rate would typically lead to larger payments.

This combination of the income period, principal, and interest directly determines the fixed payment amounts Simon will receive from his annuity. Each of these aspects is fundamental to the structure of an immediate annuity, ensuring that Simon has predictable monthly income during the chosen payout period.