Explain the key value drivers of real switching option

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Problem 1: You are contemplating buying a 3-bedroomapartment in Richmond. The property is on the market for £800,000. You currently live in a one-bedroomflat near London Waterloo Station. You own 40% of theflat and have been repaying amortgage on this property forthe past 10 years. The current market value of the one-bedroomflat is £550,000. The down payment for the Richmond apartment is 15% of market value but you only have£90,000in your bank account. Discuss examples of switching real options mechanisms that will enable you to secure a mortgage on the Richmond apartment and move to Richmond, while still repaying your other mortgage on the Waterloo flat. Explain the key value drivers of your real switching option

Reference no: EM132934182

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