Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

An individual aged 50 recently bought an annuity. Which of the following best describes an annuity in the context of investments in securities?

A contract that provides a series of periodic payments to the investor, typically after retirement, in exchange for an initial lump sum or series of payments.

A government bond that pays interest only at maturity and is considered risk-free.

A short-term debt instrument issued by corporations to raise capital, usually maturing in less than one year.

A type of equity security that represents ownership in a corporation and entitles the holder to voting rights.

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Verified step by step guidance

Step 1: Begin by understanding the concept of an annuity in the context of investments. An annuity is a financial product typically used for retirement planning, where an individual pays an initial lump sum or series of payments to an insurance company or financial institution.

Step 2: Recognize the key feature of an annuity: it provides a series of periodic payments to the investor, often starting after retirement. These payments can be fixed or variable, depending on the type of annuity purchased.

Step 3: Compare the description of an annuity with the other options provided in the question. For example, a government bond pays interest at maturity and is considered risk-free, but it does not involve periodic payments to the investor. Similarly, a short-term debt instrument like commercial paper is used for corporate capital raising and does not provide periodic payments.

Step 4: Eliminate the options that do not match the characteristics of an annuity. Equity securities represent ownership in a corporation and provide voting rights, which is unrelated to the concept of periodic payments after retirement.

Step 5: Conclude that the correct description of an annuity is: 'A contract that provides a series of periodic payments to the investor, typically after retirement, in exchange for an initial lump sum or series of payments.'