Again consider the widget investment problem in Section 17.1. Verify that with S = $50, K =

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Again consider the widget investment problem in Section 17.1. Verify that with S = $50, K = $30, r = 0.04879, σ = 0, and δ = 0.009569, the perpetual call price is $30.597 and exercise optimally occurs when the present value of cash flows is $152.957. What happens to the value of the project and the investment trigger when you change S? Why? What happens to the value of the project and the investment produce when you increase volatility? Explain.


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Derivatives Markets

ISBN: 9789332536746

3rd Edition

Authors: Robert McDonald

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