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Suppose analysts agree that the losses resulting from climate change will reach [tex]x[/tex] dollars 100 years from now. Use the concept of present value to explain why estimates of what needs to be spent today to combat those losses may vary widely. Would you expect the variation to narrow or get wider if the relevant losses were 200, rather than 100, years into the future?

Complete the following using a principal amount of $100.

Instructions: Enter your responses rounded to two decimal places.

| Discount rate / years | 20 yrs | 50 yrs | 100 yrs |
|-----------------------|--------|--------|---------|
| 2% | | | |
| 5% | | | |

Is there greater volatility with a lower discount rate or higher discount rate?

A. The higher rate
B. The lower rate

Answer :

The lower discount rate results in greater volatility. This is because changes in the discount rate have a more significant impact on the present value of future cash flows when the discount rate is lower.

How to determine if there greater volatility with a lower discount rate or higher discount rate

Estimates of what needs to be spent today to combat future losses resulting from climate change may vary widely due to the concept of present value.

Present value calculates the current worth of future cash flows by discounting them based on the time value of money. The discount rate used in present value calculations reflects the opportunity cost of investing money in the present rather than in the future.

The variation in estimates is likely to increase when dealing with longer time horizons.

Completing the table using a principle amount of $100:

Discount rate / years 20 yrs 50 yrs 100 yrs

2% $55.64 $30.17 $18.30

5% $37.69 $13.53 $7.02

Is there greater volatility with a lower discount rate or higher discount rate?

The lower discount rate results in greater volatility. This is because changes in the discount rate have a more significant impact on the present value of future cash flows when the discount rate is lower.

Learn more about volatility at https://brainly.com/question/1603761

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