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What the expected value of the mine

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Question - 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 amount is 75m pounds.

You would like to value the mine with the option to shut down.

Required -

1) What the implied probability π of the good state?

2) What the expected value of the mine?

3) Is the option to wait more or less valuable with volatility of the copper price?

Reference no: EM132966971

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