Price of put option necessary to guarantee your sales price

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Reference no: EM131183408

You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $1,260,000. Over the past five years, the price of land in the area has increased 8 percent per year, with an annual standard deviation of 37 percent. You have approached a buyer and would like the option to sell the land in 12 months for $1,410,000. The risk-free rate of interest is 4 percent per year, compounded continuously.

What is the price of the put option necessary to guarantee your sales price?

Reference no: EM131183408

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