The option to abandon a project is a real option, but a call option on a stock is not a real option.

Question

Quizplus · Accepted Answer

The statement is correct. The option to abandon a project is a real option because it gives the owner the right, but not the obligation, to abandon the project if it becomes unprofitable or not feasible. On the other hand, a call option on a stock is a financial derivative that gives the owner the right, but not the obligation, to buy a specified amount of the underlying stock at a predetermined price within a certain period. It is not considered a real option because it is purely financial and does not involve any tangible asset or project.

The Option to Abandon a Project Is a Real Option