A piece of land has 10%chance to have oil (in which case will be worth $2 million), 30% chance to have coal (in which ca

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answerhappygod
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A piece of land has 10%chance to have oil (in which case will be worth $2 million), 30% chance to have coal (in which ca

Post by answerhappygod »

A piece of land has 10%chance to have oil (in which case will be
worth $2 million), 30% chance to have coal (in which case will be
worth $0.7 million), and remaining 60% chance to have nothing
(worth $0.1 million). What is the fair value of the piece of land?
Suppose there is a contract that gives you the right, but not the
obligation, to purchase the land at $0.5 million. What is the fair
value of the contract before you find out how much the land is
worth?
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