Posted: March 7th, 2014
What is the price of 1 million ounces of gold produced in eight years?
Suppose the current price of gold is $650 an ounce. Hotshot Consultants advises you that gold prices will increase at an average rate of 12% for the next two years. After that the growth rate will fall to a long-run trend of 3% per year. What is the price of 1 million ounces of gold produced in eight years? Assume that gold prices have a beta of 0 and that the risk-free rate is 5.5%.
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