18. Real option valuation (S23.6) In binomial trees, risk-neutral probabilities are set to generate an expected rate

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18. Real option valuation (S23.6) In binomial trees, risk-neutral probabilities are set to generate an expected rate of return equal to the risk-free interest rate in each branch of the tree. What do you think of the following statement: “The value of an option to acquire an asset increases with the difference between the risk-free rate of interest and the weighted-average cost of capital for the asset”?

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Principles Of Corporate Finance

ISBN: 9781264080946

14th Edition

Authors: Richard Brealey, Stewart Myers, Franklin Allen, Alex Edmans

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