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Which of the following statements about real options is false?
A. The more volatile the underlying source of risk, the more valuable the option.
B. In general, the longer before a real option must be exercised, the more valuable it is.
C. If interest rates fall, the values of real options will increase.
D. Real options often add considerable value to projects, so ignoring them could lead to downward-biased NPVs and systematic underinvestment.
E. While sometimes it is not possible to quantify the value of a project with real options, managers should still think about real options in the framework of this equation: True NPV = NPV without options + NPV of options.
A person aged 30 wishes to accumulate a fund for retirement by making deposits of $100 at the beginning of each month for 15 years followed by deposits of $200 at the beginning of each month for the next 15 years. Starting at age 65 withdrawals will ..
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The last dividend per share on Stock K was $1.25. The dividend next year (Year 1) is expected to be 4% higher. Then the dividend is expected to continue to grow at the rate of 4% per year forever. If the stock is priced today at $16.25 per share, wha..
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Assume sigma=0.15, nu=0.10, and current stock price $32. Monthly interest rate is 1%. Compute present values of the following options expiring in 3 months. (a) A European call option with strike $30, assuming $2 dividend in 40 days. (b) European put ..
The manager of a $30 million bond portfolio has a target duration of 13 years for a portfolio with a current duration of 18 years. The manager can add zero coupon bonds with 15 years to maturity, perpetuities with a 15% YTM, or both to the portfolio ..
On January 1, you sold one March maturity S&P 500 Index futures contract at a futures price of 1,750. If the futures price is 1,850 on February 1, what is your profit or loss? The contract multiplier is $250. (Input the amount as positive value.)
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