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.

AppendixLO1