The Value of a Real Option Can Be Calculated Using

question 4

Multiple Choice

The value of a real option can be calculated using:

• A)The Black-Scholes option pricing model
• B)Binomial options pricing model
• C)Discounted cash flow analysis
• D)(a)or (b)

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Definitions:

Private Market

A private market is a part of the financial market in which investments are negotiated directly between parties, without public market listing.

Externalities

Unintended outcomes from business transactions impacting external groups, not included in the product or service pricing.

Coase Theorem

A principle that asserts that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property.

Government Intervention

The involvement of the government in the market, aiming to alter the allocation of resources and distribution of goods and services.