You own a lot in Key West, Florida, that is currently unused. The going price for similar lots is currently $1.2 million. Over the past five years, the price of land in the area has increased 10 percent per year, with an annual standard deviation of 19 percent. A buyer has recently approached you and wants an option to buy the land in the next 9 months for $1,310,000. The risk - free rate of interest is 7 percent per year, compounded continuously. How much should you charge for the option? Round off your answer to the nearest '000 dollars and show detailed calculations for each computational step.

You own a lot in Key West, Florida, that is currently unused. The going price for similar lots is currently $1.2 million. Over the past five years, the price of land in the area has increased 10 percent per year, with an annual standard deviation of 19 percent. A buyer has recently approached you and wants an option to buy the land in the next 9 months for $1,310,000. The risk - free rate of interest is 7 percent per year, compounded continuously. How much should you charge for the option? Round off your answer to the nearest '000 dollars and show detailed calculations for each computational step.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 35P

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