Which of the following statements is FALSE?
A)In particular,because real options allow a decision maker to choose the most attractive alternative after new information has been learned,the presence of real options adds value to an investment opportunity.
B)To make an investment decision correctly,the value of embedded real options must be included in the decision-making process.
C)A key distinction between a real option and a financial option is that real options,and the underlying assets on which they are based,are often traded in competitive markets.
D)We can compute the value of the real option by comparing the expected profit without the real option to the value with the option.

Question

Quizplus · Accepted Answer

The statement that real options and their underlying assets are often traded in competitive markets is false. Real options are typically not traded in financial markets and are difficult to value because they are often unique to a specific investment opportunity. Financial options, on the other hand, are traded in well-established financial markets and their values can be easily calculated using pricing models such as Black-Scholes.

Which of the Following Statements Is FALSE