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

question 43

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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.


Definitions:

Title

Legal ownership of property, including the rights to use, sell, or transfer the property.

Title

Legal ownership rights to property, signifying that the owner has the legal right to use, control, and dispose of the property.

Goods Sold

refers to merchandise that has been purchased and transferred from the seller to the buyer.

UCC's Provisions

Regulations and rules established under the Uniform Commercial Code, governing commercial transactions in the United States.

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