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You own a lot in Key West, Florida, that is currently unused.Similar lots have recently sold for $1,230,000. Over the past fiveyears, the price of land in the area has increased 5 percent peryear, with an annual standard deviation of 34 percent. A buyer hasrecently approached you and wants an option to buy the land in thenext 12 months for $1,380,000. The risk-free rate of interest is 5percent per year, compounded continuously.How much should you charge for the option? (Enter youranswer in dollars, not millions of dollars. Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 1,234,567.89.)
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