SIE (Securities Industry Essentials) Practice Exam

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Which of the following statements is true regarding the concept of an annuity contract?

It guarantees a fixed return
It offers tax-free withdrawals
The kind of annuity selected partly determines the payment amounts to the annuitant
Payment amounts are solely based on the stock market performance

The correct answer is: The kind of annuity selected partly determines the payment amounts to the annuitant

An annuity contract refers to an agreement between an individual and an insurance company, where the individual invests a sum of money for a fixed period of time and receives regular payments in return. Option A, B, and D are incorrect because an annuity does not guarantee a fixed return, offer tax-free withdrawals, or have payment amounts solely determined by the stock market performance. The kind of annuity chosen significantly impacts the payment amounts made to the annuitant, as different types of annuities have varying payout structures. Therefore, option C is the correct answer as it accurately describes the impact of the type of annuity on the payment amounts.