Which of the following will NOT increase the value of a real option?
A) An increase in the volatility of the underlying source of risk.
B) An increase in the risk-free rate.
C) An increase in the cost of obtaining the real option.
D) A decrease in the probability that a competitor will enter the market of the project in question.
E) Lengthening the time in which a real option must be exercised.

Question

Quizplus · Accepted Answer

An increase in the cost of obtaining the real option will decrease the value of the real option, as it increases the initial investment required to exercise the option. All other options will increase the value of a real option, as they either increase the potential payoff or decrease the cost of obtaining the option.

Which of the Following Will NOT Increase the Value of a Real