Black-Scholes to value one-year call option
Not what you're looking for?
You own a one-year call option on one acre of Los Angeles real estate. The exercise price for your option is $2,000,000. The current appraised market value of the land underlying your option is $1,700,000. The land is currently being used as a parking lot, generating just enough cash flow to cover the property taxes currently being assessed by the country. The standard deviation for the annual rate of growth in property values in Los Angeles County is 15 percent. The risk-free cost of borrowing to finance the purchase of the land is 9 percent. Use the Black-Scholes formula to approximate the value of the call option
Purchase this Solution
Solution Summary
The solution uses Black-Scholes formula to value one-year call option on one acre of Los Angeles real estate.
Purchase this Solution
Free BrainMass Quizzes
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.