Which of the Following Will NOT Increase the Value of a Real

question 4

Multiple Choice

Which of the following will NOT increase the value of a real option?

• A) An increase in the volatility of the underlying source of risk.
• B) An increase in the risk-free rate.
• C) An increase in the cost of obtaining the real option.
• D) A decrease in the probability that a competitor will enter the market of the project in question.
• E) Lengthening the time in which a real option must be exercised.

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Definitions:

Comparison Universe

A benchmark or group of benchmarks that portfolios are compared against to evaluate their performance or risk characteristics.

Mutual Funds

Investment funds that pool money from multiple investors to buy a diversified portfolio of stocks, bonds, or other securities.

Astronomy

The scientific study of celestial bodies, including stars, planets, comets, and galaxies, and phenomena that originate outside the Earth's atmosphere.

Sharpe Measure

A ratio designed to measure the risk-adjusted return of an investment, comparing its excess return over the risk-free rate to its standard deviation.