You own a one-year call option to buy one acre of LosAngeles real estate. The exercise price is $2.11 million,and the current, appraised market value of the land is $1.81 million. The land is currently used as a parking lot,generating just enough money to cover real estatetaxes. The annual standard deviation is 13%, and theinterest rate is 13%. How much is your call worth? Usethe Black-Scholes formula. Note: Enter your answer indollars not in millions. Round you final answer tonearest whole number. THE ANSWER IS NOT .0750!!

Step 1:S = Market price =1.81K = Strike price =2.11r = rate =13.00%e = exponential value = exp(1)…

Answered: You own a one-year call option to buy…

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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You own a one-year European call option to buy one acre of Los Angeles real estate. The exercise price is $2.03 million. Suppose the land is occupied by a warehouse generating rents of $165,000 after real estate taxes and all other out-of-pocket costs. The present value of the land plus the warehouse is $1.73 million. The annual standard deviation is 18% and the interest rate is 11%.How much is your call worth? (Enter your answer in dollars not in millions. Do not round intermediate calculations.)
You own a one-year European call option to buy one acre of Los Angeles real estate. The exercise price is $2.20 million, and the current, appraised market value of the land is $1.90 million. The land is currently used as a parking lot, generating just enough money to cover real estate taxes. The annual standard deviation is 17% and the interest rate is 12%.How much is your call worth? Use the Black–Scholes formula. (Enter your answer in dollars not in millions, rounded to the nearest dollar. Do not round intermediate calculations.)
You are thinking about buying a real estate property. If you buy the property, you think you will sell it for $829826 in 13 years. If your required return on investments of this risk is 16.17%, what is the most that you should be willing to pay for the property? Round to 2 decimal places. Include a dollar sign ($) or percent (%) as appropriate.
You have an opportunity to purchase a piece of vacant land for $30,000 cash. If you plan to hold it for 15 years and then sell it at a profit. During this period, you would have to pay annual property taxes of $600 and have no income from the property. Assuming that you would want a 10% rate of return from the investment, a) Draw a cashflow diagram. b) What net price would you have to sell it in the next 15 years?
A real estate property is on the market. You have estimated it will give you net cash flows of $5136 per month. You hope to sell it in 9 years for $308182. Your required return is 9.46%, how much should you be willing to pay for the property today? Answer:
An investor owns a lot that is suitable for either 6 or 9 condominium units. The per unit construction costs of the building with 6 units are $60000 and 9 units are $75000. Construction costs are the same whether construction takes place this year or next. The current market price of each unit is $100000. The per year rental rate is $7000 per unit (net of expense), and the risk-free rate of interest is 9% per year. If the market conditions are favourable next year, each condominium will sell for $130000. If conditions are unfavourable, each will sell for only $95000. Assume that once the construction take place, you can sell the condominium units immediately and receive the value of the unit. (a) If you build the condominium units today, how many condominium units will you build? What is the value of the lot in this case? (b) If you build the condominium units next year, what is the value of the lot today? (c) Calculate the value of option to delay
Assume that you are about to sell property (a vacant parcel of real estate) you own but otherwise have no use for. The net-of-sales-commission selling price for the property is $410,000. You are willing to finance this transaction over a 20-year period and have told the buyer that you expect an 11% pretax return on the transaction. The buyer has asked you for a payment schedule under several alternatives. Required: 1. What will be your periodic cash receipt, to earn a 11% return, if payments are received from the purchaser: NOTE: to answer the above questions, use the PMT function in Excel, as follows: PMT(rate,nper,pv,fv,type) where: rate is the interest rate for the loan, nper is the total number of payments, pv is the present value (i.e., the total amount that a series of future payments is worth now; also known as the principal), fv is the future value (or a cash balance you want to attain after the last payment is made; if fv is omitted, it is assumed to be 0 (zero)), and…
Mike Macaro is selling a piece of land. Two offers are on the table. Morton Company offered a $48,000 down payment and $35,800 a year for the next 4 years. Flynn Company offered $29,000 down and $38,800 a year for the next 4 years. Assume money can be invested at 9% compounded annually. (Use Table 13.2.) a. What is the value of the offers? (Do not round intermediate calculations. Round your answers to the nearest cent.) Value Morton Company Flynn Company b. Which offer is better for Mike? O Morton Company O Flynn Company
You can buy a piece of vacant land for $40,000 cash. You plan to hold it for 20 years and then sell it at a profit. During this period, you would pay annual property taxes of $815. You would have no income from the property. (a) Assuming that you want an 8% rate of return, at what net price would you have to sell the land 20 years hence? (b) What is open space conservation and why is it important? What options would you have in selling your property with this in mind?
You are looking at investing in undeveloped land that you expect might be worth $2138713 in 9 years. Based on the risk of the property, you require a return of 8.85%. What is the most you should be willing to pay for it today? enter only numbers and decimals in your response. Round to 2 decimal places. Use your financial calcuator.
Stan Marsh, an investor, is considering two financing plans for purchasing a parcel of real estate costing $152,264. Alternative 1 involves paying cash; alternative 2 involves obtaining 82% financing at 9.4% interest. If the parcel of real estate appreciates in value by $17,153 in 1 year, calculate (a) Stan's net return and (b) his return on equity for each alternative. If the value dropped by $17,153, what effect would this have on your answers to parts a and b?
Your landscaping company can lease a truck for $8,400 a year (paid at year-end) for 7 years. It can instead buy the truck for $44,000. The truck will be valueless after 7 years. The interest rate your company can earn on its funds is 8%. a. What is the present value of the cost of leasing? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Is it cheaper to buy or lease? c. What is the present value of the cost of leasing if the lease payments are an annuity due, so the first payment comes immediately? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. Is it now cheaper to buy or lease? Your landscaping company can lease a truck for $8,400 a year (paid at year-end) for 7 years. It can instead buy the truck for $44,000. The truck will be valueless after 7 years. The interest rate your company can earn on its funds is 8%. a. What is the present value of the cost of leasing? (Do not round intermediate calculations. Round…

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