How much should you charge for the option

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Reference no: EM131872129

You own a lot in Lexington, Massachusetts, that is currently unused. Similar lots have recently sold for $1.74 million. Over the past five years, the price of land in the area has increased 5 percent per year, with an annual standard deviation of 22 percent. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $1.9 million. The risk-free rate of interest is 4 percent per year, compounded continuously. How much should you charge for the option? (SHOW WORK)

Reference no: EM131872129

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