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An annuity of $3000 per year for eight years starts at the end of the third year and finishes at
the end of the tenth year.
Required
What is the present value of the annuity if the discount rate is 6%? (Give your answer to the
nearest $.)Annuity factor for 8 years at 6%- 6.210
Present Value = 3,000 x 6.210 = $18630
Discounting at time 2 discount factor of 0.890 gives a present value at time 0 of $18630 x 0.890 =
$16581However, this starts at the end of the third year, so why don’t we use the discount factor of year 3?
Looking forward to your response,
Iniss.Another way to do it is to take the 10 year annuity and remove the delays
That means the same amount for 8 years starting in year 3So if you think, take the whole 10 years at 6% is 7.360 – then take off the first two years of 1.833 = 5,527 * 3000 = 16,581
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