Consider the cash flows from the three activities (farming, forestry and mining) Year Farming Forestry Mining 1 25 50 2 25 50 3 25 50 4 25 50 5 25 25 10 25 11 25 12 25 60 thereafter 25 60 Treat the...


Consider the cash flows from the three activities (farming, forestry and mining)<br>Year<br>Farming Forestry Mining<br>1<br>25<br>50<br>2<br>25<br>50<br>3<br>25<br>50<br>4<br>25<br>50<br>5<br>25<br>25<br>10<br>25<br>11<br>25<br>12<br>25<br>60<br>thereafter<br>25<br>60<br>Treat the three income streams (from year 1 onwards) as if they were bonds. Find the<br>prices of the three bonds in each of the following cases: (i) all the bonds yield 5%, (ii) all<br>yield 10%, (iii) all yield 15%. Which is the most expensive bond in each of these cases, and<br>which is the cheapest? Explain your answers.<br>

Extracted text: Consider the cash flows from the three activities (farming, forestry and mining) Year Farming Forestry Mining 1 25 50 2 25 50 3 25 50 4 25 50 5 25 25 10 25 11 25 12 25 60 thereafter 25 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.

Jun 10, 2022
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