Gnu Homes, Inc

question 84

Multiple Choice

Gnu Homes, Inc., is a developer of planned residential communities. It has entered into an option contract with a land owner outside Austin, Texas. It will pay the land owner $100,000 for the option to buy the land in two years at a price of $20 million. During that time Gnu Homes will evaluate population and real estate trends in Austin. Their plan is to buy the land if real estate prices in Austin increase enough that developing the land would be worth more then the $20 million price. The $20 million purchase price resembles

• A) the premium price of a put option on the land.
• B) the premium price of a call option on the land.
• C) the strike price of a put option on the land.
• D) the strike price of a call option on the land.

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Definitions:

Ownership Interests

The rights and claims a person or entity has over an asset or property, usually manifested in equity or ownership percentage.

Marketable Title

A property title free from significant encumbrances or disputes, making it attractive for sale or transfer.

Ownership Interest

A legal or equitable claim in property, providing the holder with certain rights, such as use, enjoyment, and control.

Adverse Possession

Adverse possession is a legal principle under which a person who occupies someone else's land for an extended period, meeting certain requirements, may acquire legal ownership of that land without compensation.