Use a binomial tree to value the following option.Assume rf = 0.04,r_p =0.12,σ = 0.35,E(CF₁)= $30,and cost = $300.What is the value of this project option? A) $40.74 B) $50.60 C) $55.32 D) $62.12

Question

Quizplus · Accepted Answer

The value of the project option can be calculated using the binomial option pricing model, which incorporates the risk-free rate (rf), the volatility (σ), the expected cash flow (E(CF₁)), and the cost. Given the parameters, the correct calculation leads to a project option value of $40.74.

Use a Binomial Tree to Value the Following Option