A project requires $150 million investment. If you invest today, the present value of future cash flow is worth $180 million. You can wait for one year to observe the demand of the market; however, you forgo the cashflow in year 1. Assume if the demand is high, there will be a cash flow of $22 million in year 1 and the present value of future cash flows at the end of year 1 is $220 million; if the demand is low, there will be a cash flow of $12 million in year 1 and the present value of future cash flows at the end of year 1 is $120 million. You need to use risk-neutral valuation method to decide either invest today and start to collect the cash flow or delay it for one year. Annual risk-free rate is 3%. (a) What’s the risk-neutral probability of high demand?
(b) What’s the value of timing option?
(c) Do you want to wait for one year or invest today? Why?

Profits from using currency options and futures.on july 2, the two-month futures rate of the mexican peso contained a 2 percent discount (unannualized). there was a call option on pesos with an exercise price that was equal to the spot rate. there was also a put option on pesos with an exercise price equal to the spot rate. the premium on each of these options was 3 percent of the spot rate at that time. on september 2, the option expired. go to the oanda.com website (or any site that has foreign exchange rate quotations) and determine the direct quote of the mexican peso. you exercised the option on this date if it was feasible to do so. a. what was your net profit per unit if you had purchased the call option? b. what was your net profit per unit if you had purchased the put option? c. what was your net profit per unit if you had purchased a futures contract on july 2 that had a settlement date of september 2? d. what was your net profit per unit if you sold a futures contract on july 2 that had a settlement date of september 2