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ok this might help u guyz … dont ever work on NPV in real options as we look for lognormal returns in option valuation remember In(pa/pe) …… now u paid 14 millions (7+7) in two years to develop the game, and to buy the exclusive rights to sell the game…. u have an option to delay the release of the game cuz u have the exlucsive right now …. now to deermine the value of that options …u need to see whats the extra investment i ll have to undertake to get the PV of 38.75 (18+12+6+3) …. the extra investment u need is 35…. u dont need to discount it …. if u have an option to buy a share at 60 dollars in ten years time …u dont need to discount 60 cuz even after 10 yearz u ll pay 60 if the option is in money
very badly explained >>>SORRYi ll be denoting standard deviation by ~
in bpp book its mentioned ….. correlation coeffeicent = covariance between A and B divided by ( ~ of investment A multiplied by ~ investement b ) ….. answer will be between -1 and +1 ….. covariance is absolute …. and correlation coeffecient is relative as it tells u by how much the returns of the two investment move in line or against each other……… its like u know that some1 got 750 marks… u dont know he performed better or worse until ur told the maximum marks available… for example maximum available is 1000….. u calcualted the percentage 75 percent… now u know that he he performed reasonably well…. 750 alone has no value …. althought 75 percentage sum value of determining the performance….
so correlation coefficient shows u the strength of covariance between the returns of two investments ….. just like percentage shows u the performance….
-1 is perfectly negative….+1 is perfectly positivevery bad at teaching but hope it helps….