Question 17

An immediate annuity with quarterly payments will begin making payments 3 months after the annuity is purchased.

An immediate annuity is designed to start making payments right away, but for quarterly payments, the first payment will typically occur at the end of the first quarter, which is 3 months after the purchase.

A) 1 month after the annuity is purchased.

This option is incorrect because, although immediate annuities start paying out soon after purchase, quarterly payments require a longer interval. Payments do not occur monthly; hence, the first payment cannot be made just 1 month after the purchase.

B) 3 months after the annuity is purchased.

This option is correct as it accurately reflects the timing of the first payment for a quarterly immediate annuity. Since the annuity pays quarterly, the first payment occurs at the end of the first quarter, which is 3 months post-purchase.

C) 6 months after the annuity is purchased.

This choice is incorrect because it suggests a delay that is longer than necessary for quarterly payments. An immediate annuity with quarterly payments will not wait 6 months to make the first payment.

D) 1 year after the annuity is purchased.

This option is also incorrect. A delay of 1 year is far too long for an immediate annuity with quarterly payments, which should begin payments after 3 months.

Conclusion

The correct answer is clearly option B, as immediate annuities with quarterly payments begin payouts 3 months after purchase, aligning with the definition of immediate annuities. All other options provide incorrect timelines that do not match the payment structure of quarterly disbursements.