### Price of put option necessary to guarantee your sales price

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##### Reference no: EM131524290

You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for \$1, 270,000. Over the past five years, the price of land in the area has increased 7 percent per year, with an annual standard deviation of 33 percent. You have approached a buyer and would like the option to sell the land in 12 months for \$1, 420,000. 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 not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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