On May 25, 2018 you purchased an option which will allow you to sell a commercial building on August 14, 2022 for $42 million. Your current estimate of the value of the commercial building is $38 million. The annual volatility for the change in the commercial building’s value is 57% and the risk-free rate is 6%. a. What type of option is this? b. Calculate the value of the option to sell the commercial building. Please show work using excel
On May 25, 2018 you purchased an option which will allow you to sell a commercial building on August 14, 2022 for $42 million. Your current estimate of the value of the commercial building is $38 million. The annual volatility for the change in the commercial building’s value is 57% and the risk-free rate is 6%. a. What type of option is this? b. Calculate the value of the option to sell the commercial building. Please show work using excel
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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On May 25, 2018 you purchased an option which will allow you to sell a commercial building on
August 14, 2022 for $42 million. Your current estimate of the value of the commercial building
is $38 million. The annual volatility for the change in the commercial building’s value is 57% and
the risk-free rate is 6%.
a.
What type of option is this?
b. Calculate the value of the option to sell the commercial building.
Please show work using excel
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