In late 2006, Canada Post began issuing “permanent” stamps. Purchased at the current first-class letter rate ($0.51 at the time), these stamps may be used indefinitely even if the price of stamps increases. Arthur Ponzarelli (known to his friends as “Ponzi”) is always looking to make a quick buck, and he thinks these stamps present a lucrative opportunity. Expecting the price of postage to increase by $0.01 very soon, he decides to “invest” in 100,000 stamps.
a. If Canada Post raises the postal rate to $0.52 two weeks later, and Arthur resells his securities (the stamps) at the new price, how much profit will he make?
b. To avoid running afoul of securities laws, Arthur decides to sell his stamps to someone in another province and will have to pay $249 for shipping and insurance. Unfortunately, his reputation for shady deals has preceded him, so the purchaser is only willing to pay $0.5125 per stamp. Will Arthur still make a “quick buck”?
c. To avoid running afoul of securities laws, Arthur decides to sell his stamps to someone in another province and will have to pay $249 for shipping and insurance. He successfully sells the stamps at $0.52 each. How much money will he make?