Determine how much should you charge for the option

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Reference no: EM131971952

You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,200,000.

Over the past five years, the price of land in the area has increased 6 percent per year, with an annual standard deviation of 31 percent.

A buyer has recently approached you and wants an option to buy the land in the next 12 months for $1,350,000. 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.)

Reference no: EM131971952

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