Repeat Problem 17.18 assuming that the volatility of gold is 20% and that once opened, the mine
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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. Gold volatility is zero. What is the value of the mine?
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The key to this is to note the optimal values S and S do not depend on S Nor does S dep...View the full answer
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