Calculate the price of a 2-year chooser option. The static NPV is $1 000 000. The risk-free rate is 5% per year and the volatility is 20% per year. You plan to revise your decision each year. The alternative options are given below:

Option 1: There is an opportunity to expand by 50% the first year. To undertake this expansion opportunity, it will cost $500 000. The second year there is a possibility to expand by 25%, which is assumed to increase the expansion cost by 25%.

Option 2: The first year, there is an opportunity to contract 50% of your capacity to a competitor and save costs up to $400 000. The second year this contraction possibility becomes 25% and the savings from it become $200 000.

Option 3: At the end of the first year, you may abandon the project for $500 000 of salvage value, which will decrease by $200 000 the second year.