# Question: Consider the oil project with a single barrel in which

Consider the oil project with a single barrel, in which S = $15, r = 5%, δ = 4%, and X = $13.60. Suppose that, in addition, the land can be sold for the residual value of R = $1 after the barrel of oil is extracted. What is the value of the land?

## Answer to relevant Questions

Verify in Figure 17.2 that if volatility were 30% instead of 50%, immediate exercise would be optimal. You have a project costing $1.50 that will produce two widgets, one each the first and second years after project completion. Widgets today cost $0.80 each, with the price growing at 2% per year. The effective annual ...Repeat Problem 17.6, only assume that after the stock is excavated, the land has an alternative use and can be sold for $30m. You drawthese five numbers from a standard normal distribution: {−1.7, 0.55, −0.3, −0.02, .85}. What are the equivalent draws from a normal distribution with mean 0.8 and variance 25? For stocks 1 and 2, S1 = $40, S2 = $100, and the return correlation is 0.45. Let r = 0.08, σ1= 0.30, σ2 = 0.50, and δ1= δ2 = 0. Generate 1000 1-month prices for the two stocks. For each stock, compute the mean and ...Post your question