Dear John,
The Pa (PV of future cash flows) is discounted using the cost of capital while the Pe (exercise price) is not discounted, meaning that the Pe is the actual exercise price. Am I right? Please correct me if I am wrong.
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Real Options
8y ago#1You are right - Pe itself is just the exercise price (the Black Scholes formula does the discounting of it - that is what the bit with 'e' is doing :-) )
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