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# fm13 23 - Direct approach for estimating 2 From our...

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Mini Case: 13 - 23 Direct approach for estimating σ 2 : From our previous analysis, we know the current value of the project and the value for each scenario at the time the option expires (year 3). Here is the time line: Current Value Value At Expiration Year 0 Year 3 High \$56.02 \$111.91 Average \$56.02 \$74.61 Low \$56.02 \$37.30 The annual rate of return is: High: Return = (\$111.91/\$56.02) (1/3) – 1 = 25.9%. High: Average = (\$74.61/\$56.02) (1/3) – 1 = 10%. High: Return = (\$37.30/\$56.02) (1/3)
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