You own a one-year European call option to buy one acre of Los Angeles real estate. The
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Question:
You own a one-year European call option to buy one acre of Los Angeles real estate. The exercise price is $2.15 million, and the current, appraised market value of the land is $1.85 million. The land is currently used as a parking lot, generating just enough money to cover real estate taxes. The annual standard deviation is 18% and the interest rate is 12%.
How much is your call worth? (Enter your answer in millions. Do not round intermediate calculations. Round your answer to 4 decimal places.)
Call value $ million
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