1. You own a lot in Concord, Massachusetts, that is currently unused. Similar lots have recently sold for $1.35 million. Over the past five years, the price of land in the area has increased 5 percent per year, with an annual standard deviation of 20 percent. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $1.5 million. The risk-free rate of interest is 3.5 percent per year, compounded continuously. How much should you charge for the option? $69,051.08 $103,071.44 $84,271.46 $75,964.32 $93,567.84
2. Tewksbury has a $2,000 pure discount bond that comes due in one year. The risk-free rate of return is 3.5 percent. The firm's assets are expected to be worth either $2,400 or $1,700 in one year. Currently, these assets are worth $1,900. What is the current value of the firm's debt? $1,439.72 $1,752.86 $1,560.26 $1,815.30 $1,642.48