A copper mine has 100 pounds of raw material that we can extract one year from now. The extraction costs are $0.30 per pound which we would incur one year from now. The one-year forward price of copper is $0.35 per pound. Our analysts estimate that one year from now, the copper price will be either $0.60/pound in a good economy or $0.20/pound in a bad economy. The risk-free rate is 4%. If we don't extract the copper one year from today, Christian Slater will set off a nuclear bomb in the mine shaft and we will lose access to the mine forever.
a. Suppose we must decide today if we will extract the copper in one year’s time. Find the value of the mine.
b. [More challenging] Suppose we can wait until we know if the economy is good or bad (and thus, we will know the price of copper) before deciding whether or not to extract the copper. Find the value of the mine.
A copper mine has 100 pounds of raw material that we can extract one year from...
You own an oil well that can produce 100k barrels of oil one year from now. Next year, the price of oil will be either $80/barrel if the economy is good and $40/barrel if the economy is bad. Oil costs $50/barrel to extract. One year forwards for oil has a forward price of $55 and the risk-free rate is 4%. What is the value of the oil well if you have to decide today whether to drill for oil or...
The Silver Mine Current price of silver is 900 €/kg. Suppose that one year from now it can be 1200, 1000 or 800 €/kg, with equal probabilities. We are considering an investment in a silver mine. Our best assessment regarding possible payoffs from this investment one year from now are 200, 140 and 100 million euros, depending on the price of silver. At the same time, a one-year risk-free discount bond with a face value of 1000€ currently trades at...
Silver Mine Current price of silver is 900 e/kg. Suppose that one year from now it can be 1200, 1000 or 800 e/kg, with equal probabilities. We are considering an investment in a silver mine. Our best assessment regarding possible payoffs from this investment one year from now are 200, 140 and 100 million euros, depending on the price of silver. At the same time, a one-year risk-free discount bond with a face value of 1000 e currently trades at...
The Silver Mine Current price of silver is 900 e/kg. Suppose that one year from now it can be 1200, 1000 or 800 e/kg, with equal probabilities. We are considering an investment in a silver mine. Our best assessment regarding possible payoffs from this investment one year from now are 200, 140 and 100 million euros, depending on the price of silver. At the same time, a one-year risk-free discount bond with a face value of 1000 e currently trades...
The Silver Mine Current price of silver is 900 e/kg. Suppose that one year from now it can be 1200, 1000 or 800 e/kg, with equal probabilities. We are considering an investment in a silver mine. Our best assessment regarding possible payoffs from this investment one year from now are 200, 140 and 100 million euros, depending on the price of silver. At the same time, a one-year risk-free discount bond with a face value of 1000 e currently trades...
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If we will receive $100 per year beginning one year from now for a period of three years with a 12% discount rate, what would be the value of our investment today? $230 $240 $250 O $260
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1. Which of the following would be considered more closely related to macroeconomics? A) a firm deciding how many workers to hire. B) a household deciding how much to spend on groceries. C) a government economist forecasting the unemployment rate. D) a business trying to decide how much outuput to produce. - 2. Which of the following is an example of using the scientific method with a natural experiment? A) Measuring how long it takes a marble to fall from...
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