Arizona State University FIN FIN 40257 A: suppose the price of copper in a good state is $1.20, and in a…
suppose the price of copper in a good state is $1.20, and in a bad state $0.40, while everything else is the same: the forward price is $0.60. The explorations costs are $0.80. The risk-free discount rate is 5%. The amount is 75m pounds
1) The implied probability π of the good state is:
2) The expected value of the mine is:
3) Is the option to wait more or less valuable with volatility of the copper price?
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