Problem 5 Intro The annual interest rate is 6%. Part 1 il H I"II Attempt1/5for10pts. What is the present value (PV) of $1 ,000 that you'll receive in 8 years? 627.41 Correct J F 1,000 PV: i : : 627.41 (1 + I)N (1 + 0.0608 Dividing the future value by (1 +l)N is called discounting, and it is used to adjust for the time value of money: it's always better to receive a cash flow earlier rather than later, because we can then invest the amount and earn interest on it. Similarly, it's always better to make a payment later rather than earlier, because we could invest the amount in the meantime and earn interest on it. Using a financial calculator: N I/Y PV PMT FV Inputs 8 6 0 1,000 Compute 627.41 Using Excel (do not enter the thousands separators): =PV(rate, nper, pmt, fv) =PV(0.06, 8, 0, -1,000) =627.41 \f\f\f