Final answer:
The present value of an asset yielding $500 in five years and $1,000 in ten years at a discount rate of 6% is approximately $931.88.
Step-by-step explanation:
To calculate the present value of an asset that yields $500 in five years and $1,000 in 10 years with a discount rate of 6%, we use the present value formula:
- Present Value (PV) = Future Value (FV) / (1 + discount rate)^number of years
For the $500 received in 5 years:
PV = $500 / (1 + 0.06)^5 = $500 / (1.06)^5 = $500 / 1.33822558 ≈ $373.49
For the $1,000 received in 10 years:
PV = $1,000 / (1 + 0.06)^10 = $1,000 / (1.06)^10 = $1,000 / 1.79084731 ≈ $558.39
Now, we simply add both present values to obtain the total present value of the asset:
Total PV = PV at 5 years + PV at 10 years = $373.49 + $558.39 ≈ $931.88
Therefore, the present value of the asset is approximately $931.88.