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Charge for the option

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Reference no: EM132045212

You own a lot in Monte Carlo, Monaco, that is currently not used. Similar lots have sold for $1.08 million. Over the past five years, price of land in the area has increased 4% per year, with an annual standard deviation of 18%. A buyer has asked you and wants an option to buy the land in the next 12 months for $1.35 million. The risk-free rate of interest is 4% per year, compounded continuously. How much should you charge for the option?

a. $18,319.50

b. $17,122.90

c. $16,421.06

d. $15,846.15

e. $14,299.73

Reference no: EM132045212

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