The Price of Oil Is $22 Per Barrel

question 3

Multiple Choice

The price of oil is $22 per barrel. The effective lease rate and risk free rate are 5.0% and 6.0%, respectively. The constant cost of extraction is $18 per barrel and the volatility of prices is 18.0%. What is the value of an option to defer extraction?

• A) $5.34
• B) $6.34
• C) $7.34
• D) $8.34

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Definitions:

Management

The process of planning, organizing, directing, and controlling resources to achieve organizational goals effectively and efficiently.

Dialogue

A conversation between two or more people as a feature of a book, play, or movie, or a discussion aimed at reaching an understanding or resolution.

Persuasion Principle

A concept in social psychology that refers to the methods used to change people's beliefs, attitudes, or behaviors.

Social Proof

A psychological phenomenon where people assume the actions of others in an attempt to reflect correct behavior for a given situation.