You own a one-year call option to buy one acre of LosAngeles real estate. The exercise price is $2.11 million,and the current, appraised market value of the land is $1.81 million. The land is currently used as a parking lot,generating just enough money to cover real estatetaxes. The annual standard deviation is 13%, and theinterest rate is 13%. How much is your call worth? Usethe Black-Scholes formula. Note: Enter your answer indollars not in millions. Round you final answer tonearest whole number. THE ANSWER IS NOT .0750!!

Step 1:S = Market price =1.81K = Strike price =2.11r = rate =13.00%e = exponential value = exp(1)…

Answered: You own a one-year call option to buy…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

You own a one-year European call option to buy one acre of Los Angeles real estate. The exercise price is $2.03 million. Suppose the land is occupied by a warehouse generating rents of $165,000 after real estate taxes and all other out-of-pocket costs. The present value of the land plus the warehouse is $1.73 million. The annual standard deviation is 18% and the interest rate is 11%.How much is your call worth? (Enter your answer in dollars not in millions. Do not round intermediate calculations.)
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.
A real estate property is on the market. You have estimated it will give you net cash flows of $5136 per month. You hope to sell it in 9 years for $308182. Your required return is 9.46%, how much should you be willing to pay for the property today? Answer:
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?
Mike Macaro is selling a piece of land. Two offers are on the table. Morton Company offered a $46,000 down payment and $35,600 a year for the next 5 years. Flynn Company offered $28,000 down and $38,600 a year for the next 5 years. Assume money can be invested at 8% compounded annually. (Use Table 13.2.) a. What is the value of the offers? (Do not round intermediate calculations. Round your answers to the nearest cent.) Value Morton Company Flynn Company b. Which offer is better for Mike? O Flynn Company O Morton Company
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
An investor has an opportunity to buy a commercial property and to sell it after 15 years. Rents from the property will be $24,000 and he expects them to increase at a rate of 3% per year annually. His required rate of return on this investment is 12%. At what price would he be indifferent to buying or not buying the investment? Round off to the nearest $1. Select one: O a. $213,656 O b. $800,000 O c. $171,429 O d. $240,000
Assume that you are about to sell property (a vacant parcel of real estate) you own but otherwise have no use for. The net-of-sales-commission selling price for the property is $500,000. You are willing to finance this transaction over a 20-year period and have told the buyer that you expect a 12% pretax return on the transaction. The buyer has asked you for a payment schedule under several alternatives. Required: 1. What will be your periodic cash receipt, to earn a 12% return, if payments are received from the purchaser: NOTE: to answer the above questions, use the PMT function in Excel, as follows: PMT(rate,nper,pv,fv,type) where: rate is the interest rate for the loan, nper is the total number of payments, pv is the present value (i.e., the total amount that a series of future payments is worth now; also known as the principal), fv is the future value (or a cash balance you want to attain after the last payment is made; if fv is omitted, it is assumed to be 0 (zero)), and…
Assume that you are about to sell property (a vacant parcel of real estate) you own but otherwise have no use for. The net-of-sales- commission selling price for the property is $450,000. You are willing to finance this transaction over a 14-year period and have told the buyer that you expect a 11% pretax return on the transaction. The buyer has asked you for a payment schedule under several alternatives. Required: 1. What will be your periodic cash receipt, to earn a 11% return, if payments are received from the purchaser: NOTE: to answer the above questions, use the PMT function in Excel, as follows: PMT(rate,nper, pv,fv,type) where: rate is the interest rate for the loan, nper is the total number of payments, pv is the present value (i.e., the total amount that a series of future payments is worth now; also known as the principal), fv is the future value (or a cash balance you want to attain after the last payment is made; if fv is omitted, it is assumed to be 0 (zero)), and type is…
Your friend is considering buying a property for Sh, 50,000. If purchased the property will be financed 60% by debt at 15% p.a. payable monthly for 5 years. The property will generate NOI of Sh, 5,000 and Sh, 8,000 in year 1 and 2 respectively. The property can be sold for Sh, 60,000 at the end of year 2. The required rate of return is 25%. Calculate the BTIRR and advise. (Show your workings to a reasonable extent)
A real estate investor is considering the purchase of an apartment building that currently provides income of $30,000 and is expected to grow in income by 3% for the next 4 years. You would receive income from today, year 0, through year 4. At the end of year 4, they expect to sell the property for $800,000. The investor has a discount rate of 6%. How much should an investor be willing to pay for this property? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure.
Your landscaping company can lease a truck for $8,400 a year (paid at year-end) for 7 years. It can instead buy the truck for $44,000. The truck will be valueless after 7 years. The interest rate your company can earn on its funds is 8%. a. What is the present value of the cost of leasing? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Is it cheaper to buy or lease? c. What is the present value of the cost of leasing if the lease payments are an annuity due, so the first payment comes immediately? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. Is it now cheaper to buy or lease? Your landscaping company can lease a truck for $8,400 a year (paid at year-end) for 7 years. It can instead buy the truck for $44,000. The truck will be valueless after 7 years. The interest rate your company can earn on its funds is 8%. a. What is the present value of the cost of leasing? (Do not round intermediate calculations. Round…

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