You Are About to Embark on a Project That Has

question 6

Multiple Choice

You are about to embark on a project that has an equal 50% probability of generating a $10,000 windfall or a loss of $4,000.However,an insurance company comes to you saying they will sell you an indemnification policy for the event that you incur the $4,000 loss.If the insurance company is basing their charge for the policy on real option analysis,what will they charge you for the policy?

• A) $1,000
• B) $2,000
• C) $4,000
• D) none of the above