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

question 41

Multiple Choice

A firm has a two-year real option to invest in a project that has a present value of $400 million with an exercise price (in year 2) of $600 million. Calculate the value of the option given that N(d1) = 0.6 and N(d2) = 0.4. Assume that the risk-free interest rate is 6 percent per year.

• A)$26.4 million
• B)zero
• C)$239.59 million
• D)$13.58 million

---

Definitions:

Heart Attack

A medical condition occurring when blood flow to a part of the heart is blocked for a long enough time to cause damage or death to heart muscle, often resulting from coronary artery disease.

Type B Personality

A personality type that is laid back and less scheduled.

Elevated Blood Pressure

A condition where the force of the blood against the walls of the arteries is consistently higher than normal.

Heart Disease

A range of conditions that affect the heart, including blood vessel diseases, heart rhythm problems, and heart defects.