What is the present value of the following payments? The interest rate is 8.5%.

$200 $200 $200 $200 $200+$1,000
I--------I-------I-------I-------I-------I
0 1 2 3 4 5

What do the numbers 0,1,2,3,4,5 represent?

Sorry, they are the years

To find the present value of future payments, you need to discount each payment by the interest rate to account for the time value of money. The formula to calculate the present value of a future payment is:

PV = CF / (1 + r)^n

Where:
PV = Present Value
CF = Cash Flow (the future payment)
r = Interest Rate
n = Number of periods into the future the payment occurs

Let's calculate the present value for each payment:

For Payment 1:
CF = $200
r = 8.5%
n = 1

PV1 = $200 / (1 + 0.085)^1
PV1 = $200 / 1.085
PV1 ≈ $184.33

For Payment 2:
CF = $200
r = 8.5%
n = 2

PV2 = $200 / (1 + 0.085)^2
PV2 = $200 / 1.085^2
PV2 ≈ $169.82

For Payment 3:
CF = $200
r = 8.5%
n = 3

PV3 = $200 / (1 + 0.085)^3
PV3 = $200 / 1.085^3
PV3 ≈ $156.59

For Payment 4:
CF = $200
r = 8.5%
n = 4

PV4 = $200 / (1 + 0.085)^4
PV4 = $200 / 1.085^4
PV4 ≈ $144.44

For Payment 5:
CF = $200 + $1,000 = $1,200
r = 8.5%
n = 5

PV5 = $1,200 / (1 + 0.085)^5
PV5 = $1,200 / 1.085^5
PV5 ≈ $796.96

Therefore, the present value of the given payments is approximately:

PV = $184.33 + $169.82 + $156.59 + $144.44 + $796.96
PV ≈ $1,452.14