In a fixed immediate annuity, the amount of each payment is determined by which factors?

In a fixed immediate annuity, the amount of each payment is determined by the principal (or lump sum amount invested), the interest (rate that will be credited to the annuity), and the income period (the length of time over which the annuity payments will be made).

The principal represents the initial investment made by the annuitant, while the interest contributes to the total amount available for distribution as payments. The income period is crucial because it determines how long the payments will last, affecting the size of each individual payment. For example, if the income period is longer, the payments will be smaller since the total investment plus interest will need to be spread out over a longer time frame. Conversely, a shorter payment period results in larger payments, as the same total amount needs to be distributed over a shorter duration.

This combination of factors contributes to calculating the fixed payment amount that the annuitant will receive each period, ensuring that it is predictable and guaranteed for the specified income period.