You own a lot in Key West, Florida, that you are considering selling. Similar lots have recently sold for $1.2 million. Over the past five years, the price of land in the area has varied with a standard deviation of 19 percent. A potential buyer wants an option to buy the land in the next 9 months for $1,310,000. The risk-free rate of interest is 7 percent per year, compounded continuously. How much should you charge for the option? Round your answer to the nearest $100.

$62,000

$60,400

$63,700

$68,900

$62,500

If the price of the underlying stock decreases, then the value of the call options ________ and the value of the put options ________.

decrease; increase

increase; remain unchanged

decrease; decrease

increase; increase

increase; decrease

Rosewood Furniture is considering purchasing equipment costing $69,000 which it expects to sell at the end of Year 4 for $22,500. The firm uses MACRS depreciation with rates of 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent over Years 1 to 4, respectively. The equipment can be leased for $18,800 a year for four years. The firm can borrow at 7.5 percent and has a tax rate of 21 percent. What is the incremental annual cash flow for Year 4 if the company decides to lease the equipment rather than purchase it?

$42,730

$33,701

$50,684

$32,930

$50,430