real option in theory and practice solution
Real Options in Theory and Practice
Answers to Selected End-of-Chapter Exercises
Graeme Guthrie
This document lists the final answers to selected exercises. A full solutions manual
(with answers and working for all exercises) is available for instructors who adopt the book as a textbook.
Chapter 2
2.1. (a) $32 million. (b) $29 million. (c) $31 million.
Chapter 3
3.1. (a) πu = 0.302, πd = 0.698, V = 9.2566. (b) A = −0.9434, B = 0.15, V = 9.2566.
3.3. V = 10.38.
3.5. βx = 1.0: K = 0.9519, πu = 0.3062, V = 15.74, E[r] = 0.1116. βx = 2.0: K = 0.8919, πu = 0.1123, V = 14.82, E[r] = 0.1808.
Chapter 4
4.1. V (0, 0): 5.33, 4.83, 4.37. V (0, 0): 6.09, 5.78, 5.48.
4.5. K = 0.9822, 1 + g − (ρ − rf ) = 0.9800.
4.7. V (0, 0) = 1 −
0.95 5
1.05
0.1×0.95×72
1.05−0.95
= 26.93.
4.9. Rf X(0, 0)/(Rf − K).
4.11. (a) ρ = 0.0660. (b) V (0, 0) = 5.4976. (c) V (0, 0) = 5.4976. (d) E[Y (·, 5)] = 18.7500, ρ = 0.2781.
4.13. (a) ρ = 0.1226. (b) V (0, 0) = 5.79. (c) V (0, 0) = 5.79.
Chapter 5
5.1. V (0, 0) = 61.72.
5.3. VS (0, 0) = 62.2.
5.5. (d) $30.86. (e) $3.93.
Chapter 6
6.1. (a) Y (0, 1) = 12.50, Y (1, 1) = 0.00, Y (0, 2) = 15.63, Y (1, 2) = 10.00, Y (2, 2) = 0.00.
(b) Date 1: 6.25; date 2: 8.91. (c) Date 1: 4.76; date 2: 6.62. (d) Date 1: 0.3125; date 2: 0.1598.
6.3. (b) 6.60.
6.5. (b) With: 7.24; without: 2.16.
Chapter 7
7.1. Vb (0, 0) = 1.99.
1
7.3. (a) 2.19. (b) 2.19. (c) 1.34. (d) 0.19.
7.5. V (0, 0) = 5.200, V (0, 0) = 9.206.
7.9. V (0, 0) = 0.45.
7.11. q = 0.0: 3.57; q = 0.5: 1.58; q = 1.0: 1.43.
Chapter 8
8.1. V1 (0, 0) = 44.29, V2 (0, 0) = 13.92.
8.5. V1 (0, 0) = 10.6, V2 (0, 0) = 20.8, V3 (0, 0) = 30.8.
8.9. (b) V1 (0, 0) = 76.64, V2 (0, 0) = 42.92, V3 (0, 0) = 0.50. (c) V1 (0, 0) = 33.52, V2 (0, 0) =
5.00, V3 (0, 0) = 0.00.
8.11. (e) V0 (0, 0) = 3.97.
Chapter 9
9.1. J = 0.00, Vv (0, 0) = 7.60; J = 1.00, Vv (0, 0) = 34.48.
9.5. V1 (0, 0) = 44.29, V2 (0, 0) = 14.09.
9.7. C2 = 61, V3 (0, 0) = 30.78; C2 = 62, V3 (0, 0)
Answers to Selected End-of-Chapter Exercises
Graeme Guthrie
This document lists the final answers to selected exercises. A full solutions manual
(with answers and working for all exercises) is available for instructors who adopt the book as a textbook.
Chapter 2
2.1. (a) $32 million. (b) $29 million. (c) $31 million.
Chapter 3
3.1. (a) πu = 0.302, πd = 0.698, V = 9.2566. (b) A = −0.9434, B = 0.15, V = 9.2566.
3.3. V = 10.38.
3.5. βx = 1.0: K = 0.9519, πu = 0.3062, V = 15.74, E[r] = 0.1116. βx = 2.0: K = 0.8919, πu = 0.1123, V = 14.82, E[r] = 0.1808.
Chapter 4
4.1. V (0, 0): 5.33, 4.83, 4.37. V (0, 0): 6.09, 5.78, 5.48.
4.5. K = 0.9822, 1 + g − (ρ − rf ) = 0.9800.
4.7. V (0, 0) = 1 −
0.95 5
1.05
0.1×0.95×72
1.05−0.95
= 26.93.
4.9. Rf X(0, 0)/(Rf − K).
4.11. (a) ρ = 0.0660. (b) V (0, 0) = 5.4976. (c) V (0, 0) = 5.4976. (d) E[Y (·, 5)] = 18.7500, ρ = 0.2781.
4.13. (a) ρ = 0.1226. (b) V (0, 0) = 5.79. (c) V (0, 0) = 5.79.
Chapter 5
5.1. V (0, 0) = 61.72.
5.3. VS (0, 0) = 62.2.
5.5. (d) $30.86. (e) $3.93.
Chapter 6
6.1. (a) Y (0, 1) = 12.50, Y (1, 1) = 0.00, Y (0, 2) = 15.63, Y (1, 2) = 10.00, Y (2, 2) = 0.00.
(b) Date 1: 6.25; date 2: 8.91. (c) Date 1: 4.76; date 2: 6.62. (d) Date 1: 0.3125; date 2: 0.1598.
6.3. (b) 6.60.
6.5. (b) With: 7.24; without: 2.16.
Chapter 7
7.1. Vb (0, 0) = 1.99.
1
7.3. (a) 2.19. (b) 2.19. (c) 1.34. (d) 0.19.
7.5. V (0, 0) = 5.200, V (0, 0) = 9.206.
7.9. V (0, 0) = 0.45.
7.11. q = 0.0: 3.57; q = 0.5: 1.58; q = 1.0: 1.43.
Chapter 8
8.1. V1 (0, 0) = 44.29, V2 (0, 0) = 13.92.
8.5. V1 (0, 0) = 10.6, V2 (0, 0) = 20.8, V3 (0, 0) = 30.8.
8.9. (b) V1 (0, 0) = 76.64, V2 (0, 0) = 42.92, V3 (0, 0) = 0.50. (c) V1 (0, 0) = 33.52, V2 (0, 0) =
5.00, V3 (0, 0) = 0.00.
8.11. (e) V0 (0, 0) = 3.97.
Chapter 9
9.1. J = 0.00, Vv (0, 0) = 7.60; J = 1.00, Vv (0, 0) = 34.48.
9.5. V1 (0, 0) = 44.29, V2 (0, 0) = 14.09.
9.7. C2 = 61, V3 (0, 0) = 30.78; C2 = 62, V3 (0, 0)