You own a one-year European call option to buy one acre of Los Angeles real estate. The exercise price is $2.02 million, and the current, appraised market value of the land is $1.72 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 14%. 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 own a one-year European call option to buy one acre of Los Angeles real estate. The exercise price is $2.02 million, and the current, appraised market value of the land is $1.72 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 14%. 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.)
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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Transcribed Image Text:You own a one-year European call option to buy
one acre of Los Angeles real estate. The exercise
price is $2.02 million, and the current, appraised
market value of the land is $1.72 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 14%. 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.)
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