Suppose I am obligated to buy a house from Mark in a year. I consider the obligation
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Suppose I am obligated to buy a house from Mark in a year. I consider the obligation similar to a forward contract. The fair value of the house is $1 million today Assume that today is April 30, 2021. The property tax of $10,000 is due today and another $10,000 is due on November 1, 2021. Mark will pay the tax.
The property tax is like the cost of carrying in the forward contract.
What is the fair value of the house in 1 year holding everything else constant?
The interest rate is 1 per year.
Related Book For
Money, Banking, and the Financial System
ISBN: 978-0134524061
3rd edition
Authors: R. Glenn Hubbard, Anthony Patrick O'Brien
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