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what is the projects present value? and objective probabilities if the required expected rate of return is 25% The current price of a tradable (non-dividend
what is the projects present value? and objective probabilities if the required expected rate of return is 25%
The current price of a tradable (non-dividend paying) security S is 100 and its future prices follow a binomial lattice with u = 1.5 and d=1, i.e., if the market is "up" next year the security's price will be 150; if the market is "down" next year the security's price will be 66.6. A project under consideration has a present value (of discounted expected subsequent future) cash flow of 1500 if the market is up next year, and has a present value (of discounted expected subsequent future) cash flow of 666.6 if the ma is down next year. The risk-free rate is 5%.
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