Problem 2 (10 points).Traditional (exponential) discounting. Using a spreadsheet program, graph the changes in the present value of 1 billion dollars over time. Use a one year step, starting at year t=0 (today) up to year t=99. Set up a table of the following format, and compute the present values under different assumptions about the discount rate. Put time on the horizontal axis, the present values on the vertical axis, and graph all the present value curves on the same graph (we have 3 different discount rates, so you should have 3 curves on the graph).

(5 points)What is the present value of 1 billion dollars at t=99 (i.e., in one hundred years)? Discuss the importance of the choice of a discount rate for evaluating, for example, environmental damages removed into a fairly distant future.

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