Use Cox-Ross-Rubenstein to Construct a 2-Year Binomial Tree for the Evolution

question 8

Multiple Choice

Use Cox-Ross-Rubenstein to construct a 2-year binomial tree for the evolution of cash flows with a binomial period of 1.Assume the initial cash flow (CF₁) is $20 million,σ = 0.45,r = 0.13,g = 0.02,and the project lasts 2 years.What is the value of the project on the up node in year 1?

• A) $85 million
• B) $185 million
• C) $285 million
• D) $385 million

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