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What is the present value of an asset that yields $500 in five years and $1,000 in 10 years if the discount rate is 6%

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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.

User Sam Zhou
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