Again consider the widget investment problem in Section 17.1. Verify that with S = $50, K =

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Again consider the widget investment problem in Section 17.1. Verify that with S = $50, K = $30, r = 0.04879, σ = 0, and δ = 0.009569, the perpetual call price is $30.597 and exercise optimally occurs when the present value of cash flows is $152.957. What happens to the value of the project and the investment trigger when you change S? Why? What happens to the value of the project and the investment trigger when you increase volatility? Why?
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Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

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