lronTrade is considering investing in a mining project that can be sold anytime during its life for $69,000. The value of the project is $81,000 today. During each of the next two 6-month periods, the value of the project is expected to either increase by 30% or fall by 30%. The risk-free interest rate is 10% per six months. What is the value of the embedded option using the risk-neutral method?
lronTrade is considering investing in a mining project that can be sold anytime during its life for $69,000. The value of the project is $81,000 today. During each of the next two 6-month periods, the value of the project is expected to either increase by 30% or fall by 30%. The risk-free interest rate is 10% per six months. What is the value of the embedded option using the risk-neutral method?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter14: Real Options
Section: Chapter Questions
Problem 4MC
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lronTrade is considering investing in a mining project that can be sold anytime during its life for $69,000. The value of the project is $81,000 today. During each of the next two 6-month periods, the value of the project is expected to either increase by 30% or fall by 30%. The risk-free interest rate is 10% per six months. What is the value of the embedded option using the risk-neutral method?
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