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Question: BBX firm agrees today to enter into a contract with BSX that requires BBX to pay to BSX 1,000,000 British pounds in exactly one year for a certain building. The building is expected to generate a net income for the year of 100,000 British pounds and has no other costs. Naturally its value may vary throughout the year depending on market conditions. No money changes hands between BBX and BSX today. The current risk free rate in Britain is 12% per annum continuously compounded. If the current market value of the building is 1,000,000 British pounds is this a fair deal for BBX (please argue your case carefully)?

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