Question
1. You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,250,000 million. Over the past five
1. You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,250,000 million. Over the past five years, the price of land in the area has increased 7 percent per year, with an annual standard deviation of 36 percent. You would like an option to sell the land in the next 12 months for $1,400,000. The risk-free rate of interest is 3 percent per year, compounded continuously. |
What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of Put Option? |
2. A stock is currently priced at $92. The stock will either increase or decrease by 10 percent over the next year. There is a call option on the stock with a strike price of $90 and one year until expiration. |
Assume the risk-free rate is 2 percent. What is the risk-neutral value of the option? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call Value ? |
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