In the 2006 Stern Review, Professor Nicholas Stern used the discount rate of 1.4% (1.3% due to technological progress plus 0.1% for the possibility of extinction). Professor William Nordhaus argued that the impatience of citizens, estimated to be around 3.0% per annum, should also be considered, and suggested an overall discount rate of 4.3%. The following table shows the present values of a $100 payment in future, discounted at the two rates. Based on this information, which of the following statements is correct? A) Nordhaus would only approve of a project that saves $100 in environmental damages 50 years from now if it costs less than $12.18 today. B) Nordhaus’s estimation of the discount rate is more correct than Stern’s. C) Both Stern and Nordhaus consider future generations as less worthy of our concern than the current generation. D) Stern would recommend a lower carbon price than Nordhaus. Discount Rate (%) 0 1 10 50 100 Years in the future 0.0 $100.00 $100.00 $100.00 $100.00 $100.00 1.4 $100.00 $98.62 $87.02 $49.49 $24.90 4.3 $100.00 $95.88 $65.64 $12.18 $1.48
In the 2006 Stern Review, Professor Nicholas Stern used the discount rate of 1.4% (1.3% due to technological progress plus 0.1% for the possibility of extinction). Professor William Nordhaus argued that the impatience of citizens, estimated to be around 3.0% per annum, should also be considered, and suggested an overall discount rate of 4.3%. The following table shows the present values of a $100 payment in future, discounted at the two rates. Based on this information, which of the following statements is correct? A) Nordhaus would only approve of a project that saves $100 in environmental damages 50 years from now if it costs less than $12.18 today. B) Nordhaus’s estimation of the discount rate is more correct than Stern’s. C) Both Stern and Nordhaus consider future generations as less worthy of our concern than the current generation. D) Stern would recommend a lower carbon price than Nordhaus. Discount Rate (%) 0 1 10 50 100 Years in the future 0.0 $100.00 $100.00 $100.00 $100.00 $100.00 1.4 $100.00 $98.62 $87.02 $49.49 $24.90 4.3 $100.00 $95.88 $65.64 $12.18 $1.48
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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In the 2006 Stern Review, Professor Nicholas Stern used the discount rate of 1.4% (1.3% due to technological progress plus 0.1% for the possibility of extinction). Professor William Nordhaus argued that the impatience of citizens, estimated to be around 3.0% per annum, should also be considered, and suggested an overall discount rate of 4.3%. The following table shows the present values of a $100 payment in future, discounted at the two rates. Based on this information, which of the following statements is correct?
A) Nordhaus would only approve of a project that saves $100 in environmental damages 50 years from now if it costs less than $12.18 today.
B) Nordhaus’s estimation of the discount rate is more correct than Stern’s.
C) Both Stern and Nordhaus consider future generations as less worthy of our concern than the current generation.
D) Stern would recommend a lower carbon price than Nordhaus.
| Discount Rate (%) | 0 | 1 | 10 | 50 | 100 |
| Years in the future | |||||
| 0.0 | $100.00 | $100.00 | $100.00 | $100.00 | $100.00 |
| 1.4 | $100.00 | $98.62 | $87.02 | $49.49 | $24.90 |
| 4.3 | $100.00 | $95.88 | $65.64 | $12.18 | $1.48 |
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