C. Suppose you just inherited an gold mine. This gold mine is believed to have t

Question

C. Suppose you just inherited an gold mine. This gold mine is believed to have three years worth of gold deposit. Here is how much income this gold mine is projected to bring you each year for the next three years:

Year 1: $42,000,000

Year 2: $62,000,000

Year 3: $99,000,000

Compute the present value of this stream of income at a discount rate of 8%. Remember, you are calculating the present value for a whole stream of income, i.e. the total value of receiving all three payments (how much you would pay right now to receive these three payments in the future). Your answer should be one number - the present value for this gold mine at a 8% discount rate but you have to show how you got to this number.

Now compute the present value of the income stream from the gold mine at a discount rate of 6%, and at a discount rate of 4%.

Explanation / Answer

42/(1.08) +62/(1.08)^2 +99/(1.08)^3= 170,633,288 42/1.06 +62/(1.06)^2 +99/(1.06)^3= 177,924,730 42/1.04 +62/(1.04)^2 +99/(1.04)^3= 185,717,740

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