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The value of a project is $ 1 0 0 and the cost at t = 0 is $ 1 0 4 . The project
The value of a project is $ and the cost at t is $
The project value follows a binomial model. It could go up to
$ or down to $ The government posts a guarantee of
$ at time What is the value of the option? The
required rate of return is and the riskfree rate is
per period.
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