Given a 7 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $1,500, $1,700, $1,700, and $2,000, respectively.

Note: Do not round intermediate calculations and round your final answer to 2 decimal places.

To compute the present value (PV) of the payments, we use the formula for the present value of future payments:

\[
PV = \frac{C_1}{(1+r)^1} + \frac{C_2}{(1+r)^2} + \frac{C_3}{(1+r)^3} + \frac{C_4}{(1+r)^4}
\]

Where:
- $ C_1, C_2, C_3, C_4 $ are the cash flows in years 1, 2, 3, and 4, respectively.
- $ r $ is the interest rate (7% or 0.07).
- The denominator $ (1+r)^n $ discounts each cash flow back to the present value.

Given the cash flows:
- Year 1: $ C_1 = 1500 $
- Year 2: $ C_2 = 1700 $
- Year 3: $ C_3 = 1700 $
- Year 4: $ C_4 = 2000 $

Substituting these into the formula and calculating the present value for each year:

\[
PV = \frac{1500}{(1+0.07)^1} + \frac{1700}{(1+0.07)^2} + \frac{1700}{(1+0.07)^3} + \frac{2000}{(1+0.07)^4}
\]

Let's compute this step by step.The present value of the payments made in years 1, 2, 3, and 4 is **$5,800.21**.

Would you like more details on how this was calculated or have any further questions?

Here are 5 related questions to explore further:
1. How would the present value change if the interest rate were 5% instead of 7%?
2. How do you compute the future value of these cash flows at a 7% interest rate?
3. What is the effect of increasing the number of payments on the present value?
4. How does compounding frequency (monthly, quarterly, etc.) affect the present value of these payments?
5. Can you compute the present value for varying interest rates over the four years?

**Tip:** When calculating the present value of future payments, ensure that you discount each payment based on the number of years it will take to receive that payment.

Given a 7 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $1,500, $1,700, $1,700, and $2,000, respectively.

Learn how to compute the present value of future payments made over four years with a 7% interest rate. This step-by-step guide breaks down the discounting formula for payments of $1,500, $1,700, $1,700, and $2,000. Perfect for finance students learning about the time value of money.

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