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

question 41

Multiple Choice

A firm has a two-year real option to invest in a project that has a present value of $400 million with an exercise price (in year 2) of $600 million. Calculate the value of the option given that N(d1) = 0.6 and N(d2) = 0.4. Assume that the risk-free interest rate is 6 percent per year.

• A)$26.4 million
• B)zero
• C)$239.59 million
• D)$13.58 million

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United States

A country in North America consisting of 50 states and known for its significant influence on global politics, economy, and culture.

Germs

Microorganisms, especially those that cause disease.

Life Expectancy

The average period that a person may expect to live, often used as an indicator of the health status of a population.

Highest Life Expectancy

Refers to the highest average period that a living organism or population is expected to live, often used in context to specific countries or regions.