The value of a "real option" is
A)the price at which an option to buy or sell an underlying asset trades on an exchange floor.
B)the value of having the flexibility to change course in the future.
C)indeterminable since it is a very nebulous concept.
D)infinite since it "keeps the door open" in the future.

Question

Quizplus · Accepted Answer

The value of a "real option" refers to the value or benefit of having the flexibility to change course in the future. It is not related to the price at which an option trades on an exchange floor, nor is it indeterminable or infinite. The value of a "real option" is the value of having the flexibility to change course in the future. Real options include the ability to delay a decision, expand or contract operations, switch products, or enter or exit a market. The value of a real option is not easily quantifiable, but it can be significant in making strategic decisions.

The Value of a "Real Option" Is