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You own a lot in Key West, Florida, that is currently unused. Similar lots have recently...

You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $2 million. Over the past five years, the price of land in the area has increased 15% per year, with an annual standard deviation of 22%. A buyer has recently approached you and wants an option to buy the land in the next 9 months for $2,160,000. The risk free rate of interest is 3% per year, compounded continuously. How much do you charge for the option?

a. 193,240.97

b. 101,056.16

c. 111,693.66

d. 106,374.91

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Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

ANSWER : d : 106374.91

jeff jeffy answered 4 months ago
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