Consider the cash flows from the three activities (farming, forestry and mining) Farming Forestry Mining 50...
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Consider the cash flows from the three activities (farming, forestry and mining) Farming Forestry Mining 50 50 50 50 Year 1 231 4 5 ... 10 11 12 thereafter 25 25 25 25 25 25 25 25 25 25 0 0 0 0 0 0 0 60 60 Treat the three income streams (from year 1 onwards) as if they were bonds. Find the prices of the three bonds in each of the following cases: (i) all the bonds yield 5%, (ii) all yield 10%, (iii) all yield 15%. Which is the most expensive bond in each of these cases, and which is the cheapest? Explain your answers. Consider the cash flows from the three activities (farming, forestry and mining) Farming Forestry Mining 50 50 50 50 Year 1 231 4 5 ... 10 11 12 thereafter 25 25 25 25 25 25 25 25 25 25 0 0 0 0 0 0 0 60 60 Treat the three income streams (from year 1 onwards) as if they were bonds. Find the prices of the three bonds in each of the following cases: (i) all the bonds yield 5%, (ii) all yield 10%, (iii) all yield 15%. Which is the most expensive bond in each of these cases, and which is the cheapest? Explain your answers.
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To find the price of each bond we need to calculate the present value of the future cash flows from each activity We will do this for each given inter... View the full answer
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