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Unformatted text preview: expires. We previously calculated the value of the project at the time the option expires, and we can use this to calculate the expected value and the standard deviation. Value At Expiration Year 1 High $111.91 Average $74.61 Low $37.30 Expected Value =.3($111.91)+.4($74.61)+.3($37.3) = $74.61. σ value = [.3($111.91$74.61) 2 + .4($74.61$74.61) 2 + .3($37.30$74.61) 2 ] 1/2 = $28.90. Coefficient Of Variation = CV = Expected Value / σ value CV = $74.61 / $28.90 = 0.39. Here is a formula for the variance of a stock’s return, if you know the coefficient of variation of the expected stock price at some point in the future. The CV should be for the entire project, including all scenarios: σ 2 = LN[CV 2 + 1]/T = LN[0.39 2 + 1]/1 = 14.2%....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
 Spring '08
 Staff

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