You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold
Question:
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.1 million. Over the past five years, the price of land in the area has increased 11 percent per year, with an annual standard deviation of 30 percent. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $1.325 million. The riskfree rate of interest is 5 percent per year, compounded continuously. How much should you charge for the option?
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Using the BlackScholes option pricing model with a stock price of 11...View the full answer
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Related Book For
Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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