You are a project manager and need the volatility to evaluate a major project for your company. The project has a value of $100 million today.
1. The technical experts and management believe, with 95% confidence, that the project should be worth $350 million or $50 million in 4 years, what is the annualized volatility?
2. Will the answer in part 1 overestimate or underestimate the volatility if the experts and management are in fact only 90% confident?
3. Suppose the expected continuously compounded (annual) rate of return on the project is 20%. What is the annualized volatility if the technical experts and management provide only the guessed probability, say 10%, for the PV exceeding $350 million in four years?
