You have an investment where you make regular payments over a specified period. In return, you receive guaranteed monthly income payments for the rest of your life. This investment is particularly useful for ensuring a steady income stream during retirement. Which investment is it?
Answer
A
Bond: Bonds offer fixed interest payments and principal repayment at maturity.
B
Certificate of deposit (CD): CDs offer fixed interest rates and maturity periods, but not lifelong income.
C
Mutual fund: Mutual fund returns vary based on market performance.
D
Annuity: Annuities provide regular, guaranteed income payments for life.
Explanation
An annuity is funded through payments made over a specified period or as a lump sum, then pays out income according to its terms. A lifetime annuity can provide guaranteed monthly payments for as long as you live, making it useful for retirement income. The correct choice is D, Annuity.
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