Real Options

Question 1

Distinction between Real and Financial Options

Answer 1

real options and underlying assets on which they are based are not often traded in competitive markets

Question 2

Real Options are…

Answer 2

the right to make a particular business decision - such as capital investment

Question 3

Option to Delay: Investment as a call option (3)

Answer 3

often a cost to delaying an investment decision
however by delaying gain additional information regarding the value of investment
decision to wait involves a trade-off between these costs and the benefit of remaining flexible

Question 4

Growth Option

Answer 4

option to invest in the future

Question 5

Abandonment Option

Answer 5

option to disinvest