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Math Help - Value of Option

  1. #1
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    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%?
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  2. #2
    is up to his old tricks again! Jhevon's Avatar
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    Quote Originally Posted by owenji81 View Post
    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"?
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