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

question 43

Multiple Choice

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% per year.

• A)$30.00 million
• B)$49.25 million
• C)zero
• D)$7.08 million

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Definitions:

Nonrational Psychological Functions

Refer to mental processes that operate beyond logical reasoning, often involving emotions, perceptions, and intuitions.

Personal Unconscious

A concept in analytical psychology representing all information that is present within an individual's mind but not currently in conscious awareness.

Sensing

A process in cognitive functioning that involves perceiving physical stimuli through the senses.

Personality Types

Categories used to describe and group individuals according to shared psychological traits, behaviors, and patterns.