3. Fred Smith owns a British Consul, a security which pays the equivalent of $10

Question

3. Fred Smith owns a British Consul, a security which pays the equivalent of $1000 U.S. each year on September 15, forever. Fred has recently considered selling the security. The current interest rate is 10%

a. What is the minimum sales price he must be offered to should consider selling the Consul, after Sept. 15?
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b. Joe Miller offers to purchase the Consul, but wants to buy it on Sept. 14. Should Fred change his price in (a)? If so, why and what price should he charge?

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Explanation / Answer

In this case we use FV = PV/i A FV = 1000/.1 =10000 B. In this case he should anticipate the interest and still charge the same price. Hope this helps

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