Discuss the relative merits and demerits of the CAPM, the Fama and French's (1982) Three Factor Model,
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Birmingham plc is selling contracts to purchase each of the four-bedroom apartments referred to above in a year from now at a fixed price of £400,000. The contract for each apartment is being sold for £10,000 and is expected to expire in exactly a year from now. Anyone who wants to buy one of the fully-detached four bedroom apartments referred to above in a year from now, or later, but does not buy the contract for purchasing the apartment from Birmingham plc now, will be charged £460,000 for the apartment after now. The £10,000 that will be paid for each contract now is non-refundable and anyone who buys a contract from Birmingham plc now does not have to use it to buy an apartment from the company in a year from now.Based on the information above.
Answer the following questions: (i) What type of contract is referred to in the information above? Explain your answer.
(ii) Describe the factors may affect the value of the contract described in (b) above to its buyers and explain how each of the factors may affect the value of the contract.
(iii) Describe the risks associated with the contract referred to in (b) above to both Birmingham plc and the buyers of the contract.
Related Book For
Managerial Accounting
ISBN: 978-1118385388
2nd edition
Authors: Ramji Balakrishnan, Konduru Sivaramakrishnan, Geoff B. Sprinkle
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