Suppose you own a vacant plot of land & your choice is always simple : either leave the land vacant or build on it. The value of house follows geometric Brownian motion, rising at a rate of 2% per year on average but also fluctuating with market conditions with a volatility of 0.2. The value of a new house today is V= $130,000. The rent that can be charged on a house is proportional to the market value of the house and equals 7% of the value. A new house costs $100,000 to build. The risk-free interest rate is 0.01.Explain whether you should build a house now or wait?

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