AFMDecember 2010 question Marengo

In part b of this question To find the option value to delay D1 is 0.617 and D2 is 0.193 FOr N(d1)= 0.5+0.2291+0.7x(0.2324-0.2291)= 0.7314 N(d2)= 0.5+0.0753+0.3x(0.0793-0.0753)=0.5765 How did they calculate?

In future, you must ask in the Ask the Tutor Forum if you want me to answer - this forum is for students to help each other. A few things: Firstly, d1 is negative, and therefore (-d1) is positive. So for N(-d1) we add 0.5 to the table value, so it is 0.5 + 0.0199 (not 0.5 - 0.0199). (The extra bit (0.0239-0.0199/2) is not really necessary in the exam - it is apportioning between the table values for 0.51 and 0.52 because the tables only let you look up for 2 decimal places). Secondly, I don't know which question and answer you are looking at, but I am looking at the original question and the examiner's answer. He does not calculate N(d2) for part (a) - it is not needed!! Thirdly, (and the same as above really) part (b) of the original question does not ask for any calculations for an option to delay, and so I do not know what you are asking about.

Ok thanks, I got the part a, my mistake for N(d2) in part a, it wasn't required, but b asks to estimate the financial impact of the director's decision to delay the production of game using BSOP Model Part b as aforesaid And they used call option to value the delay of project And I apologize I just noticed that drop down list contains a separate head of Ask the tutor p4., I'll keep that in mind for next topic and i hope it's okay to continue this thread here

Sorry, but as I wrote before, part (b) of the actual exam question does not ask for any calculations. It says "Discuss possible reasons for the suggestions made by each of the three managers".