Repeat Problem 17.18 assuming that the volatility of gold is 20% and that once opened, the mine

Question:

Repeat Problem 17.18 assuming that the volatility of gold is 20% and that once opened, the mine can be costlessly shut down forever. What is the value of the mine? What is the price at which the mine will be shut down?
In problem 17.18
A mine costing $1000 will produce 1 ounce of gold per year forever at a marginal extraction cost of $250, with production commencing 1 year after the mine opens.
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

Question Posted: