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Suppose you are thinking of buying an apartment complex. The asking price is $1 million. The complex generates $200,000 per year in rental income and costs $100,000 per year to maintain. The risk-free rate of interest is 7% per year. Unfortunately, you will not have the capital required to complete this kind of deal until you collect a signing bonus from your new job in 6 months. You propose a forward contract in which you agree today to buy the complex from the seller in 6 months. What selling price should be agreeable to both parties?

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Financial Management, Finance

Category:- Financial Management
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