You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,300,000. Over the past five years, the price of land in the area has increased 4 percent per year, with an annual standard deviation of 30 percent. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $1,450,000. 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 $ 116,429.88 A put option and a call option with an exercise price of $55 expire in four months and sell for $.86 and $5.20, respectively. If the stock is currently priced at $58.40, what is the annual continuously compounded rate of interest? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Rate of interest 5.17% A company has a single zero coupon bond outstanding that matures in five years with a face value of $39 million. The current value of the company's assets is $29 million and the standard deviation of the return on the firm's assets is 39 percent per year. The risk- free rate is 3 percent per year, compounded continuously. a. What is the current market value of the company's equity? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the current market value of the company's debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) c. What is the company's continuously compounded cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d. The company has a new project available. The project has an NPV of $2,800,000. If the company undertakes the project, what will be the new market value of equity? Assume volatility is unchanged. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) e. Assuming the company undertakes the new project and does not borrow any additional funds, what is the new continuously compounded cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) ILI Ninet Value of equity? Asune Voiduilty is unchanged. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.. 1,234,567.89.) e. Assuming the company undertakes the new project and does not borrow any additional funds, what is the new continuously compounded cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Market value of equity b. Market value of equity Cost of debt d. Market value of equity Cost of debt % c. % e
