Tracy Magnus (age 65) recently purchased an immediate annuity with no refund feature for $150,000 that pays a lifetime monthly income of $1,500. Tracy has a life expectancy of 22 years.

1. If she receives 12 monthly payments of $1,500 the first year, how much taxable income must she report on her tax return? 2. Would Tracy's monthly payment be larger or smaller if her annuity had a refund feature? Explain.