Solved by verified expert :PROBLEM 12-5: Valuation an American OptionGivenRisk-neutral probabilityRisk free Interest rateDiscount factor = exp(Risk free interest rate)Strike (in $ millions)0.46265%$23.00SolutionTodayYear OneYear TwoYear Three$$Text Color LegendValue of Beginning Oil Field Operations Now $NPV of waiting (NPV-Waiting)NPV of Exercising Now (NPV-Now)Value of American Option = max (NPV-Waiting,NPV-Now)$$14.570031.780028.190025.00019.6600$$26.5500$$35.830023.550020.8800Cell Outline Legend$17.4400StockWaitExercisea.Solution Legend= Value given in problem= Formula/Calculation/Analysis required= Qualitative analysis or Short answer required= Goal Seek or Solver cell= Crystal Ball Input= Crystal Ball Output
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