Question
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $2 million. Over the past five years,
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $2 million. Over the past five years, the price of land in the area has increased 11 percent per year, with an annual standard deviation of 25 percent. A buyer has recently approached you about buying the land in the next 14 months for $2,120,000. The risk-free rate of interest is 4 percent per year, compounded continuously. You want the option to sell the land to the buyer in one year. What is the price of the transaction today?
- $208,603.69
-$203,789.75
-$239,318.10
-$204,582.38
-$227,922.00
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