Use Cox-Ross-Rubenstein to Construct a 2-Year Binomial Tree for the Evolution

Use Cox-Ross-Rubenstein to construct a 2-year binomial tree for the evolution of cash flows with a binomial period of 1.Assume the initial cash flow (CF₁) is $20 million,σ = 0.45,r = 0.13,g = 0.02,and the project lasts 2 years.What is the value of the project on the up node in year 1?

A) $85 million
B) $185 million
C) $285 million
D) $385 million

Correct Answer:

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