Thread: Value of Option

Consider a derministic cash flow stream with all positive flows. let PV(r) denote the present value of this stream at an interest rate r. If r decrease, PV should increase. However, solve the Simplico gold mine problem with r = 4% and find the value of the lease is $22.1m (was $24.1m).
Can you explain why the value decreased relative to its value with r = 10%?

Originally Posted by owenji81

Consider a derministic cash flow stream with all positive flows. let PV(r) denote the present value of this stream at an interest rate r. If r decrease, PV should increase. However, solve the Simplico gold mine problem with r = 4% and find the value of the lease is $22.1m (was $24.1m).
Can you explain why the value decreased relative to its value with r = 10%?

Could you give more info on the "Simplico gold mine problem"?