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.) Price of put option
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.) Price of put option
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
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Transcribed Image Text: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.)
Price of put option
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