Which of the following describes how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?
A)The expected return is divided by the number of payments.
B)The original investment is divided by the prevailing interest rate.
C)The original investment is divided by the number of payments.
D)The expected return is divided by the prevailing interest rate.
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

The annuity exclusion ratio is calculated by dividing the original investment by the number of payments. This determines the portion of each payment that is a tax-free return of the original investment, as opposed to taxable income.

Which of the Following Describes How the Annuity Exclusion Ratio