Practice Question 1)

Jet Black is an international conglomerate with a petroleum division and is currently competing in an auction to win the right to drill for crude oil on a large of land in one year. The current market price of crude oil is $60 per barrel, and the land is believed to contains 495,000 barrels of oils. If found, the oil would cost $35 million to extract. Treasury bill that mature in one year yield a continuously compounded interest rate of 4 percent, and the standard deviation of the returns on the price of crude oil is 50 percent. Use one step binomial model to calculate the maximum bid that the company should be willing to make at the auction. Show steps please