option

问题如下：

A mining company is considering some new technology that will enable it to extract high copper yields from an otherwise inaccessible deposit in the Atacama Desert. The extra costs of the specialized technology place the project in it’s Tier 3 category. Tier 3 projects are activated only if the price of copper is above US$2.75/pound and is expected to remain at that level for the duration of the project.

The conditions associated with project’s classification as a Tier 3 project are *best* described as an example of a/an:

选项：

A.price-setting option. B.fundamental option. C.abandonment option.

解释：

Correct Answer: B

B is correct. The payoffs from the copper mine development are contingent on the price of copper, as is the case with many commodity investments. This is a fundamental option because the entire project is essentially an option.

A is incorrect. Price-setting options exist when management is able to increase prices when demand exceeds capacity. Copper prices are set in commodities markets and cannot be controlled by company’s management.

C is incorrect. Abandonment options exist after an investment is made, and management determines that the initial results are disappointing. Company’s classification system applies before any investment takes place.