What factors determine the amount of an annuity payment?

The amount of an annuity payment is primarily determined by the starting principal, interest rate, and income period. The starting principal refers to the initial amount of money that has been invested or saved to purchase the annuity. This principal accumulates interest over time, which is a key factor in determining how much income the annuity can generate.

The interest rate applied to the principal affects the growth of the investment, with higher rates resulting in larger eventual payments. Additionally, the income period, which can be based on the annuitant's life expectancy or a specified number of years, directly influences how payments are structured. A longer income period generally leads to smaller payments over time since the total amount is spread out over a more extended duration.

The correct selection emphasizes these critical components that directly impact the calculation of annuity payments, highlighting the financial mechanics at play in determining how much an individual can expect to receive from their annuity over time.