You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.35 million. Over the past five years, the price of land in the area has increased 7 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 $1.6 million. The risk-free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.35 million. Over the past five years, the price of land in the area has increased 7 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 $1.6 million. The risk-free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 22P
Related questions
Question
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.35 million. Over the past five years, the price of land in the area has increased 7 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 $1.6 million. The risk-free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT