Multiple Choice
When you use credit in a financial transaction, what are you creating?
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1. Introduction to Accounting
Types of Accounting
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Which two terms are directly associated with the way an annuity is funded?
A
Immediate and Deferred
B
Fixed and Variable
C
Present and Future
D
Ordinary and Due
Verified step by step guidance1
Understand the concept of an annuity: An annuity is a financial product that provides a series of payments made at equal intervals. It is often used for retirement planning or investment purposes.
Identify the key terms related to funding an annuity: The way an annuity is funded refers to how and when payments are made into the annuity. This can be immediate (starting payments right away) or deferred (starting payments at a later date).
Differentiate between the other options: Fixed and Variable refer to the type of returns or payments an annuity provides, not how it is funded. Present and Future relate to time value of money concepts, and Ordinary and Due refer to the timing of payments, not funding.
Focus on the correct terms: Immediate and Deferred are directly associated with the funding of an annuity because they describe when the payments into the annuity begin.
Conclude that understanding these terms is essential for analyzing annuities and their funding mechanisms in financial accounting and planning.
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