If the three-year present value annuity factor is 2.673 and two-year present value annuity factor is 1.833, what is the present value of $1 received at the end of the 3 years?
A) $1.1905
B) $0.84
C) $0.89
D) None of the above

Question

Quizplus · Accepted Answer

PVAF (3 years) = 2.673
PVAF (2 years) = 1.833
PVAF (1 year) = PVAF (3 years) / PVAF (2 years) = 2.673 / 1.833 = 1.458
Present value of $1 received at the end of the 3 years = $1 / PVAF (3 years) = $1 / 2.673 = $0.374
Therefore, the best choice is B, $0.84, which is the closest option to $0.374 multiplied by 2.25 (to get the answer for three years).

If the Three-Year Present Value Annuity Factor Is 2