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Question
The current price per cord of lumber is $26.00. The effective annual lease rate is 2.0% and the risk free rate is 4.0%. The cost to harvest one cord is $20.00 and constant. What is the trigger price at which we will harvest the lumber?A) $27.61
B) $31.61
C) $35.61
D) $39.61
Answer
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Related questions
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Assume the following: LN(S) and LN(Q) have a correlation coefficient of -0.65, S(0) = 55, Q(0) = 60, r = 0.04, σs = 0.22 σQ = 0.15, and dividends = 0. Using formula 20.39, what is the price of a claim that pays Q/?
A) $8.16
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The current price of silver is $32.00 per ounce. The effective lease rate and risk free rate are 3.0% and 4.0%, respectively. If the cost to mine one ounce of silver is a constant $25.00, what is the trigger price per ounce at which the silver will be mined?
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