Question
You own a one-year call option on one acre of Los Angeles real estate. The exercise price is $2 million, and the current, appraised market
You own a one-year call option on one acre of Los Angeles real estate. The exercise price is $2 million, and the current, appraised market value of the land is $1.7 million. The land is currently used as a parking lot, generating just enough money to cover real estate taxes. The annual standard deviation is 15% and the interest rate 12%. How much is your call worth? Use the Black–Scholes formula.
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Financial Markets and Institutions
Authors: Jeff Madura
12th edition
9781337515535, 1337099740, 1337515531, 978-1337099745
