Question: An airport has a capacity to handle 1,450 flights per day. The current number of flights per day is 1,150. However, this seems to fluctuate over time with an annual volatility of 0.35. Once it reaches capacity it will miss out on revenue that it might otherwise receive. The airport charges $850 for each flight that uses the airport Some land next to the airport has come onto the market and the airport is considering buying it for expansion purposes. The land will cost $1,200,000 to purchase and the cost for expanding the airport (building an extra runway, hangars, etc.) will be $10,000,000. The risk free rate is 0-05- While there is no current need for the expansion, it will be difficult to obtain land in the future- Therefore the airport wishes to carry out a real options analysis using a binomial lattice covering a period of 10 years using 20 time steps to decide if it is worth purchasing the land. What are the up and down movements u and d to use in the lattice? (answer to 3 decimal places)

Price: $2.99

Solution: The downloadable solution consists of 1 pages
Deliverable: Word Document