Final answer:
The present value of the combined cash flows is $1,705.94. If you invest the first payment for 6 years, you would have $1,338.23 at the end of 11 years. If you invest the combined cash flows for 6 years, you would have $2,422.97 at the end.
Step-by-step explanation:
The present value of the combined cash flows can be calculated by finding the present value of each cash flow and adding them together. To find the present value, we need to discount each cash flow based on the annual interest rate. The formula for present value is:
Present Value = Cash Flow / (1 + Interest Rate)^n
Using this formula, the present value of the $1,000 payment received in 6 years is approximately $747.26, and the present value of the $1,500 payment received in 11 years is approximately $958.68. Therefore, the present value of the combined cash flows is $747.26 + $958.68 = $1,705.94.
If you invest the $1,000 payment received in 6 years, at the end of 11 years, you would have:
$1,000 * (1 + 0.06)^5 = $1,338.23
Finally, if you invest the amount found in part 1 ($1,705.94) for 6 years, at the end you would have:
$1,705.94 * (1 + 0.06)^6 = $2,422.97