L9. Discounting the future

L9. Discounting the future - DiscountingtheFuture...

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Discounting the Future Adapted from ECON 371 -  Brian Copeland
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Reading n Chapter on Principles of Analysis n W. Nordhaus, “A Review of the Stern Review on the Economics of Climate Change,” Journal of Economic Literature 2007. n P. Dasgupta, “Comments on the Stern Review’s Economics of Climate Change.”
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Discounting n Generate present value of future streams of benefits and costs. q Time is an integral part of our study of Natural Resources. n Extraction today implies costs in the future. n Investment today creates benefits in the future. n What is the correct discount rate?
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What is the correct discount rate? n What is your current value of $1000 ten years from now? A. 1000 — discount rate of 0%. B. 990.0547807—discount rate of 0.1% C. 905.2869547—discount rate of 1%. D. 463.1934881—discount rate of 8%. E. 161.5055829—discount rate of 20%.
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Mechanics of discounting n Let x be your investment. If invested at a rate r for 10 years your return is x(1+r)^10
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What is the appropriate rate? n
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L9. Discounting the future - DiscountingtheFuture...

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