Question:
An annuity will pay four annual payments of $100, with the first payment to be received three years
fromnow. If the interest rate is 12 percent per year, what is the present value of this annuity? Use the
appropriate table located at the end of the textbook to solve this problem.
a. $181
b. $242
c. $304
d. $400
Answer:
b. First solve for present value of a four-year ordinary annuity:
PVA = $100 x 3.03735 = $304
Then discount back two years:
PV = $304 x 0.79719 = $242
An annuity will pay four annual payments of $100, with the first payment to be received three years
fromnow. If the interest rate is 12 percent per year, what is the present value of this annuity? Use the
appropriate table located at the end of the textbook to solve this problem.
a. $181
b. $242
c. $304
d. $400
Answer:
b. First solve for present value of a four-year ordinary annuity:
PVA = $100 x 3.03735 = $304
Then discount back two years:
PV = $304 x 0.79719 = $242
