Question
Consider the example of a gold mine, where you have the rights to the mine for the next 20 years, over which period you plan
Consider the example of a gold mine, where you have the rights to the mine for the next 20 years, over which period you plan to extract 5,000 ounces of gold every year. As an experienced analyst you expect the gold market to either go up or down in the future. The chance for either up or down is 50%. The price per ounce is $300 currently, but it is expected to increase 3% a year in the good case when the market goes up, and decrease 2% a year if it goes down. The appropriate discount rate is 10%. Should you invest in this gold mine? *
yes or No
Suppose the probability for the good case is now 55%, but if the bad case happens, gold price per ounce would decrease by 3%/year, should you invest in the gold mine? *
yes or no
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