Ch$14$ Example

Which of the following are not real options?

a$.$ The option to expand production if the product is successful.

b$.$ The option to buy additional shares of stock if the stock price goes up$.$

c$.$ The option to expand into a new geographic region.

d$.$ The option to abandon a project.

e$.$ The option to switch sources of fuel used in an industrial furnace.

Which of the following will not increase the value of a real option?

a$.$ An increase in the time remaining until the real option must be exercised.

b$.$ An increase in the volatility of the underlying source of risk.

c$.$ An increase in the risk$-$free rate.

d$.$ An increase in the cost of exercising the real option.

e$.$ Statements b and d$.$