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The Perth Mint (the government corporation that prints money and coin) had just produced a one...

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Finance

The Perth Mint (the government corporation that prints money andcoin) had just produced a one kilogram gold coin imbedded with arare-red-argyle diamond. The mint values the coin at $1,000,000. Aone kilogram of gold has a market value of approximately $50,000while the news media values the rare diamond at $950,000.

1. If the gold and the diamond both increase in value at 2% perannum, how much will the coin be worth in ten (10) years' time?

11. Assume gold increases in value at the risk free rateestimated to be 1.7% and diamonds have an average expected annualrate of price increase of 4.5%.

How much will the cold coin be worth in ten years' time?

111. Would you consider the gold coin a good investment? Why orwhy not?

Answer & Explanation Solved by verified expert
3.6 Ratings (582 Votes)
1 The following details have been provided Present Value PV of Gold 50000 Present Value of Diamond 950000 Growth rate g 2 per annum Time period t 10 years Now Value of Coin Value of Gold Value of Diamond So Value of Coin in 10 years PV of Gold1 gt PV of Diamond1gt 500001 00210 950000100210    See Answer
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Transcribed Image Text

The Perth Mint (the government corporation that prints money andcoin) had just produced a one kilogram gold coin imbedded with arare-red-argyle diamond. The mint values the coin at $1,000,000. Aone kilogram of gold has a market value of approximately $50,000while the news media values the rare diamond at $950,000.1. If the gold and the diamond both increase in value at 2% perannum, how much will the coin be worth in ten (10) years' time?11. Assume gold increases in value at the risk free rateestimated to be 1.7% and diamonds have an average expected annualrate of price increase of 4.5%.How much will the cold coin be worth in ten years' time?111. Would you consider the gold coin a good investment? Why orwhy not?

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