You own a lot in Key West, Florida, that is currently unused. Similar lots have recentl sold for $1,310,000. Over the past five years, the price of land in the area has increased percent per year, with an annual standard deviation of 31 percent. You have approache a buyer and would like the option to sell the land in 12 months for $1,460,000. The risk free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do no round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) Price of put option $ 208,531.70

You own a lot in Key West, Florida, that is currently unused. Similar lots have recentl sold for $1,310,000. Over the past five years, the price of land in the area has increased percent per year, with an annual standard deviation of 31 percent. You have approache a buyer and would like the option to sell the land in 12 months for $1,460,000. The risk free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do no round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) Price of put option $ 208,531.70

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

See similar textbooks

Similar questions

You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.35 million. Over the past five years, the price of land in the area has increased 7 percent per year, with an annual standard deviation of 35 percent. You have approached a buyer and would like the option to sell the land in the next 12 months for $1.6 million. The risk-free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.35 million. Over the past five years, the price of land in the area has increased 7 percent per year, with an annual standard deviation of 35 percent. You have approached a buyer and would like the option to sell the land in the next 12 months for $1.6 million. The risk-free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of put option
You own a lot in Key West, Florida, that is currently unused. The going price for similar lots is currently $1.2 million. Over the past five years, the price of land in the area has increased 10 percent per year, with an annual standard deviation of 19 percent. A buyer has recently approached you and 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 off your answer to the nearest ‘000 dollars and show detailed calculations for each computational step.
You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.8 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 15 percent. A buyer has recently approached you about buying the land in the next 11 months for $2,030,000. The risk-free rate of interest is 5 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?
so.3 You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1.35 million. Over the past five years, the price of land in the area has increased 7 percent per year, with an annual standard deviation of 35 percent. You have approached a buyer and would like the option to sell the land in the next 12 months for $1.6 million. The risk-free rate of interest is 5 percent per year, compounded continuously. What is the price of the put option necessary to guarantee your sales price? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)
You are considering investing in a rental property. Market rent for similar properties is 1, 500 a month (18,000 a year). Maintenance costs, property tax and insurance add up to 4, 000 a year. You expect rent and cost to increase at 5% a year. You plan to hold the property for 10 years and expect to sell it at the end of 10 years for $250,000. How much should you pay for it now if you're asking for a return of 15% ?Question 13 options: $152, 134.01 $132, 058.94 $169, 321.37 $145, 426.88
You have the opportunity to invest in Gopher Gardens, a residential high-rise real estate property in downtown Minneapolis. You expect Gopher Gardens to generate $4.5M in rent one year from now and for rent to increase at 8% per year for the following four years. Five years from now, you believe you will be able to sell the property for $30 million. Assume the interest rate is 6% per year. a)How much should you be willing to pay today for Gopher Gardens? b) If you can buy the property for $43 million, what is the NPV of this opportunity?
You are buying an investment property for $362,854 today. Through research, you have determined that the value of the property is likely to grow at a rate of 7.8% per year, on average. How long until the value of the property grows to $528,707?
You have an opportunity to purchase a piece of vacant land for $30,000 cash. If you plan to hold it for 15 years and then sell it at a profit. During this period, you would have to pay annual property taxes of $600 and have no income from the property. Assuming that you would want a 10% rate of return from the investment, a) Draw a cashflow diagram. b) What net price would you have to sell it in the next 15 years?
The Dallas Development Corporation is considering the purchase of an apartment project for $100.000. They estimate that they will receive $15.000 at the end of each year for the next 10 years.;At the end of the 10th year, the apartment project will be worth nothing. If Dallas purchases the project, what will be its internal rate of return, compounded annually?If the company insists on an 8 percent return compounded annually on its investment, is this a good investment?
An investor owns a lot that is suitable for either 6 or 9 condominium units. The per unit construction costs of the building with 6 units are $60000 and 9 units are $75000. Construction costs are the same whether construction takes place this year or next. The current market price of each unit is $100000. The per year rental rate is $7000 per unit (net of expense), and the risk-free rate of interest is 9% per year. If the market conditions are favourable next year, each condominium will sell for $130000. If conditions are unfavourable, each will sell for only $95000. Assume that once the construction take place, you can sell the condominium units immediately and receive the value of the unit. (a) If you build the condominium units today, how many condominium units will you build? What is the value of the lot in this case? (b) If you build the condominium units next year, what is the value of the lot today? (c) Calculate the value of option to delay
You purchase a brand-new property that had an NOI of $12 million last year (year 0). NOI is expected to grow at 5% a year. In order to maintain this growth, you hire a management team to manage the property and they charge 3% of NOI per annum. The risk-free rate is 1%. You go to bank ABC to take out an amortized loan. The going-in cap rate for the property is 6%. They are willing to lend you 75% of the fair market value of the property. The term of the loan is 25 years, the interest rate = 4% above the risk-free rate. What is the maximum amount of debt you can take?