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From: Phil Ips
Morning All,
I am trying to find a way of pricing an option over a potential land purchase. For example, the vendor wants $1,000,000 for their land and are willing to lock it up with an option over a period of, say 2 years.
Is there a generally accepted method or formula for working out what the option should be worth. It could be as simple as working out the interest payable on the purchase price over the period the land is locked up but this seems to defeat the main reason the buyer wanted to lock up the land in the first place (ie) to avoid paying interest on the purchase price of a non producing asset while the planning proposal goes through the hoops with the local council.
Can anyone help??
Regards,
Trader
Morning All,
I am trying to find a way of pricing an option over a potential land purchase. For example, the vendor wants $1,000,000 for their land and are willing to lock it up with an option over a period of, say 2 years.
Is there a generally accepted method or formula for working out what the option should be worth. It could be as simple as working out the interest payable on the purchase price over the period the land is locked up but this seems to defeat the main reason the buyer wanted to lock up the land in the first place (ie) to avoid paying interest on the purchase price of a non producing asset while the planning proposal goes through the hoops with the local council.
Can anyone help??
Regards,
Trader
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