You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold
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Question:
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,280,000. Over the past five years, the price of land in the area has increased 6 percent per year, with an annual standard deviation of 35 percent. You have approached a buyer and would like the option to sell the land in the next 12 months for $1,430,000. The risk-free rate of interest is 4 percent per year, compounded continuously.
What is the price of the put option necessary to guarantee your sales price?(Round your answer to 2 decimal places. (e.g., 32.16))
Price of put option$
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