What is the value of an option which pays 1 in 1 year only


Using the result from the first applications exercise, what is the valuation multiple in the state defined by rQ = 5 percent? Use Proposition 5 of the technical appendix. If interest rates are 6 percent, what is the value of an option which pays $1 in 1 year only in the state defined by rQ = 5 percent? Assume that the probability of that state occurring is 50 percent.

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Portfolio Management: What is the value of an option which pays 1 in 1 year only
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