a. If the one-year discount factor is .905, what is the one-year interest rate? b. If the

Question:

a. If the one-year discount factor is .905, what is the one-year interest rate?

b. If the two-year interest rate is 10.5%, what is the two-year discount factor?

c. Given these one- and two-year discount factors, calculate the two-year annuity factor.

d. If the PV of $10 a year for three years is $24.65, what is the three-year annuity factor?

e. From your answers to (c) and (d), calculate the three-year discount factor.

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...