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

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Finance

You own a lot in Key West, Florida, that is currently unused.Similar lots have recently sold for $1,340,000. Over the past fiveyears, the price of land in the area has increased 8 percent peryear, with an annual standard deviation of 31 percent. A buyer hasrecently approached you and wants an option to buy the land in thenext 12 months for $1,490,000. The risk-free rate of interest is 4percent per year, compounded continuously.

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

Call price=

Answer & Explanation Solved by verified expert
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We need to use BlackScholes formula for calculation of callprice below is the formulaCall price SeTNd1 KerT Nd2Where S Stock price or in our    See Answer
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