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You own a lot in Lowell, Massachusetts that is currently unused. Similar lots have recently sold...

You own a lot in Lowell, Massachusetts that is currently unused. Similar lots have recently sold for $0.7 million. Over the past five years, the price of land in the area has increased 8 percent per year, with an annual standard deviation of 12 percent. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $0.77 million. The risk-free rate of interest is 3 percent per year, compounded continuously. How much should you charge for the option?

$16,877.44

$15,996.12

$14,762.58

$13,267.79

$12,196.55

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Expert Solution

I HAVE GIVEN FORMULAS, WHICH ARE HAND WRITTEN, SO YOU CAN SOLVE THEM EASILY, ALL VALUES ARE EXPLAINED

jeff jeffy answered 3 hours ago
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