You expect to receive annual gifts of $1,000 at the end of Years 1 and 2 and $1,500 at the end of Years 3 and 4. Which of these is the correct present value of multiple annuities formula if the rate is 6 percent

Total Present Value = 4280.962

Explanation:

The correct Present Value formulae

PV of annuity formula:

PV = A * 1 - (1+r) ^ (-n) / r

PV - Present value of annuity'

A - Annual cash flow

r - discount rate per period

n - number of period

First set of cash inflows i. e 1,000 for year 1 and 2

1,000 * (1 - 1.06^ (-2)) / 0.06

PV = 1,833.39

Second set of cash flows i. e year 3 and 4

Year 3 and Year 4

1,500 * (1 - 1.06^ (-2)) / 0.06 * 1.06^ (-2)

= 2,447.569

Total PV = 1,833.39 + 2,447.569 = 4280.962086

Total Present Value = 4280.962