Forward Prices for Gold,in Dollars Per Ounce,for the Next Five

question 19

Multiple Choice

Forward prices for gold,in dollars per ounce,for the next five years are 1350,1400,1560,1675,and 1756,respectively.A mine can be opened for 3 years at a cost of $2,000.Annual mining costs are a constant $500 and interest rates are 5.0%.When should the mine be opened to maximize NPV?

• A) Year 1
• B) Year 2
• C) Year 3
• D) Never

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