JUST ANSWER #5.

3. Suppose you come upon another project with exactly the same costs and possible payoffs However, this film is a movie version of the popular 1960s television show Gilligan's Island Would you give the green light to this movie without having sold the sequel rights to Arundel Partners? Why? What is its value?

4. Suppose that the actual volatility of the payoffs for the Gilligan's Island project is 100%but the average payoff is the same . The risk neutral probabilities and payoffs are shown in Exhibit 2 and in the Excel file Would the fact that the project becomes riskier make you more likely or less likely to take on this project? What is its value?

5. 1978, Ralph Bakshi released an animated movie version of the first half of Tolkien's The Lord of the RingsDespite critical acclaim for the movie, it did not do well , and Bakshi never made nor released the second part . In 2001, Peter Jackson released The Fellowship of the Ring, the first of three movies that make up a live action version of The Lord of the Rings Jackson filmed all of the live action scenes for all three movies before releasing the first one. Thinking about the properties of options, briefly explain why Bakshi waited to see if the movie was a success, while Jackson decided to exercise his option to make the sequels before the first movie was released.

Exhibit 1 Distribution of Payoffs using 40% Volatility Probability Payoff 0.00019 359,764,739 0.00234 285,576,576 0.01347 226,686,975 0.04692 179 941.175 0.11033 142,834,967 0.18448 113,380,541 0.22493 90,000,000 0.20149 71, 440,831 0.13160 56,708,803 0.06113 45,014,711 0.01916 35,732,093 0.00364 28,363,671 0.00032 22,514,713 Exhibit 2 Distribution of Payoffs using 100% Volatility See Excel Sheet for more details. Note - you can do this problem without knowing the intermediate steps in the Binomial Tree. Exhibit 2 Distribution of Payoffs using 100% Volatility See Excel Sheet for more details. Note - you can do this problem without knowing the intermediate steps in the Binomial Tree. Exhibit 2 Distribution of Payoffs using 100% Volatility Probability Payoff 0.00005 2,875,297 096 0.00072 1614, 145,537 0.06515 1906.155 339 0.02226 508.701,031 0.06494 285,576,576 0.13476 160 318,096 020390 90.000.000 0.22665 150 524552 0.18372 28.363671 0.10589 15,922 909 0.04120 8,938,865 0.00971 5.018,135 0.00105 12.8174100 I See Excel Sheet for more details, Note - you can do this problem without knowing the intermediate steps in the Binomial Tree. Exhibit 1 Distribution of Payoffs using 40% Volatility Probability Payoff 0.00019 359,764,739 0.00234 285,576,576 0.01347 226,686,975 0.04692 179 941.175 0.11033 142,834,967 0.18448 113,380,541 0.22493 90,000,000 0.20149 71, 440,831 0.13160 56,708,803 0.06113 45,014,711 0.01916 35,732,093 0.00364 28,363,671 0.00032 22,514,713 Exhibit 2 Distribution of Payoffs using 100% Volatility See Excel Sheet for more details. Note - you can do this problem without knowing the intermediate steps in the Binomial Tree. Exhibit 2 Distribution of Payoffs using 100% Volatility See Excel Sheet for more details. Note - you can do this problem without knowing the intermediate steps in the Binomial Tree. Exhibit 2 Distribution of Payoffs using 100% Volatility Probability Payoff 0.00005 2,875,297 096 0.00072 1614, 145,537 0.06515 1906.155 339 0.02226 508.701,031 0.06494 285,576,576 0.13476 160 318,096 020390 90.000.000 0.22665 150 524552 0.18372 28.363671 0.10589 15,922 909 0.04120 8,938,865 0.00971 5.018,135 0.00105 12.8174100 I See Excel Sheet for more details, Note - you can do this problem without knowing the intermediate steps in the Binomial Tree