You Own a Lot in Key West, Florida, That Is

question 10

Multiple Choice

You own a lot in Key West, Florida, that is currently unused. Similar lots have recently sold for $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 23 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 your answer to the nearest $1,000.)

• A)$52,000
• B)$58,000
• C)$63,000
• D)$72,000
• E)$77,000

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Definitions:

Concepts

Abstract ideas or general notions that exist in the mind as representations of categories or classes of objects, events, or activities.

Pigeons

Birds that are often used in research to study behavior and learning due to their ability to perform tasks and remember patterns.

Intrinsic Motivation

The drive to engage in an activity for its own sake, rather than for some external reward or outcome.

Creativity

The use of imagination or original ideas to create something; inventiveness.