ABC owns a machine and looking to sell it in 1 year. The machine costs $10,000,000...

ABC owns a machine and looking to sell it in 1 year. The machine costs $10,000,000 currently. The price of the machine has a historical volatility of 12%. A buyer is interested in entering into a contract to have the option to buy the machine in one year for $10,000,000. If the risk-free rate is 6% compounded continuously, what is the value of the option contract?

Expert Solution

Value of option contract is 812484.2860

jeff jeffy answered 1 year ago

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ABC owns a machine and looking to sell it in 1 year. The machine costs $10,000,000...

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