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Explanation:
An annuity is a financial product sold by financial institutions (such as insurance companies) designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time or immediately. The scenario described is a classic example of an annuity.
Q.2 Mike Dean, FRM, enters into a contract with an insurance company where he pays a lump sum of $40,000 upfront, in exchange for regular yearly payments, each amounting to $2500, for the next 25 years. This is most likely:
A
A term life insurance contract
B
An annuity contract
C
A universal life contract
D
An Endowment life insurance contract
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