You own a contract that promises an annuity cash flow of $100 year-end

You own a contract that promises an annuity cash flow of $100 year-end cash flows for each of the next three years (note: the first cash flow is exactly one year from today). At an interest rate of 10%, what is the present value of this contract?

A) $248.69
B) $273.55
C) $331.00
D) $364.10

ANSWER

A
Explanation: A) PVA = $100/.10 * (1-(1/(1.1 )^3 )) = 248.69 or, via calculator; N = 3, I = 10, PMT = $100, FV = $0 solve for PV.