Call price-how much should you charge for option

Assignment Help Financial Management
Reference no: EM131619551

You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1, 320,000 Over the past five years, the price of land in the area has increased 6 percent per year, with an annual standard deviation of 32 percent. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $1, 470,000. The risk-free rate of interest is 4 percent per year, compounded continuously.

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

Call price $

Reference no: EM131619551

Questions Cloud

What is the required rate of return on okefenokee stock : What is the required rate of return on Okefenokee stock?
What are the wsc proceedings : Get a copy of a recent WSC Proceedings and report on the different applications discussed in an area of interest to you.
Explain how clearly defined problem could help with solution : Select a business situation Closure of Goodwin Proctor Law Firm. Relate research to the problem. Explain how a clearly defined problem could help with solution.
Influence a meteorologist ability to represent : Speculate on how this difference might influence a meteorologist's ability to represent accurately the state of the atmosphere.
Call price-how much should you charge for option : How much should you charge for the option?
Discuss on the call center simulation : Search the web for "Applications of discrete simulation" and prepare a report based on the findings.
Analyze the key steps that might require a contingency plan : Explain what you learned about creativity and its relationship to the decision-making process. Analyze the key steps that might require a contingency plan.
What is the value of the option to expand : We are examining a new project. We expect to sell 5, 700 units per year at $71 net cash flow apiece for next 10 years. What is the value of the option to expand
What is the wavelength in the groove : A 3.49 rad/s (33 rpm) record has a 5.10-kHz tone cut in the groove. If the groove is located 0.100 m from the center of the record, what is the "wavelength".

Reviews

Write a Review

Financial Management Questions & Answers

  Assume semiannual compounding periods

You find a zero coupon bond with a par value of $10,000 and 14 years to maturity. The yield to maturity on this bond is 5.1 percent. Assume semiannual compounding periods. What is the price of the bond?

  Coupon bonds on the market-what is the current bond price

Lycan, Inc., has 8.6 percent coupon bonds on the market that have 9 years left to maturity. The bonds make annual payments. Required: If the YTM on these bonds is 10.6 percent, what is the current bond price?

  What should be the market price of moriband stock

Morlband Corp. paid a dividend of $2.32 yesterday. The company's dividend is expected to grow at a steady rate of 5 percent for the foreseeable future. If Investors In stocks of companies like Moriband require a rate of return of 23.0 percent, what s..

  Accelerated depreciation will increase the firms cash flow

Depreciation is an accounting concept intended to match the cost of an asset with the revenue the asset produces over time. It’s not a cash flow. But going from a straight-line depreciation calculation to some form of accelerated depreciation will in..

  What is expected capital gains yield

The next dividend payment by Dizzle, Inc., will be $3.15 per share. The dividends are anticipated to maintain a growth rate of 6.5 percent, forever. Assume the stock currently sells for $49.90 per share. What is the dividend yield? What is the expect..

  Dividends are expected to grow-what is current share price

Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 29 percent for the next three years, with the growth rate falling off to a constant 7.8 percent thereafter. If the required return is 15 percent and the company just paid a $3..

  Calculate the firm new long-term debt added during year

During the year, Belyk Paving Co. had sales of $2,398,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,427,000, $435,200, and $490,200, respectively. Calculate the firm's new long-term debt added during t..

  What is its current market value

If the market rate on the CD falls to 6.25 percent, what is its current market value?

  What is its sustainable growth rate

Rocky Sales, Inc., has current sales of $1,170,994 and net income of $187,359. It also has a debt ratio of 43 percent and a dividend payout ratio of 56 percent. The company’s total assets are $785,099. What is its sustainable growth rate?

  Agency conflicts-cost may produce optimal capital structure

Describe how the trade-offs between the different classes of Agency Conflicts and Costs may produce an Optimal Capital Structure in the context of Jensen

  Enable michele to achieve her investment requirement

In order to fund her retirement, Michele requires a portfolio with an expected return of 0.10 per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock..

  Two different capital structures

Uptown construction is comparing two different capital structures. Plan i would result is 23,000 shares of stock and 320,000 in debt. Plan ii would result in 17000 shares of stock and 260,000 in debt.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd