8 points Save Answer QUESTION 13 a. Superine has successfully tested a protype of an advanced computer chip. The CEO of the company has agreed to further develop the chip for commercialization. It is expected that the full development will take five years to complete with annual developments cost (paid at the beginning of each year) $12 million. The probability of project success is 15%. If development is successful and the CEO decides to proceed with commercialization, the factory to produce the chip can be built immediately at a cost of $700 million. The commercialized chip will generate profits of $85 million at the end of every year in perpetuity. Assume that the current four-year risk- free interest rate is 6.5% per year, and the yield on a perpetual risk-free bond will be 15%, 12%, 8%, or 6% in five years. Assume that the risk-neutral probability of each possible rate is the same. What is the value today of this project and should it be accepted? 5 marks). b. The price of a one-year call option for OmniPay Lid with a $25 strike price is $ 14.5. The current stock price of the firm is $35 per share and the one-year risk-free interest rate is 8%. Is there an arbitrage opportunity if the price of an identical put option is selling for $4.50? If there is, how much of riskless profit you would carn by exploiting this opportunity? Clearly show what you must do to exploit this opportunity (3 marks). For the toolbar, press ALT+F10 (PC) or ALT-FN-F10 (Mac). BIUS Paragraph Open Sans,s... V 10pt E AVV Ix Q E x X ? 0 WORDS POWERED BY TINY 8 points Save Answer QUESTION 13 a. Superine has successfully tested a protype of an advanced computer chip. The CEO of the company has agreed to further develop the chip for commercialization. It is expected that the full development will take five years to complete with annual developments cost (paid at the beginning of each year) $12 million. The probability of project success is 15%. If development is successful and the CEO decides to proceed with commercialization, the factory to produce the chip can be built immediately at a cost of $700 million. The commercialized chip will generate profits of $85 million at the end of every year in perpetuity. Assume that the current four-year risk- free interest rate is 6.5% per year, and the yield on a perpetual risk-free bond will be 15%, 12%, 8%, or 6% in five years. Assume that the risk-neutral probability of each possible rate is the same. What is the value today of this project and should it be accepted? 5 marks). b. The price of a one-year call option for OmniPay Lid with a $25 strike price is $ 14.5. The current stock price of the firm is $35 per share and the one-year risk-free interest rate is 8%. Is there an arbitrage opportunity if the price of an identical put option is selling for $4.50? If there is, how much of riskless profit you would carn by exploiting this opportunity? Clearly show what you must do to exploit this opportunity (3 marks). For the toolbar, press ALT+F10 (PC) or ALT-FN-F10 (Mac). BIUS Paragraph Open Sans,s... V 10pt E AVV Ix Q E x X ? 0 WORDS POWERED BY TINY