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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 $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. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $1,430,000. The risk-free rate of interest is 4 percent per year, compounded continuously.

How much should you charge for the option? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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jeff jeffy answered 1 year ago
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