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A Firm Has a Three-Year Real Option to Invest in a Project

question 44

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A firm has a three-year real option to invest in a project that has a present value of $500 million with an exercise price (in year 3) of $800 million. Calculate the value of the option given that N(d1) = 0.3 and N(d2) = 0.15. Assume that the risk-free interest rate is 6 percent per year.


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