You expect the price of a certain painting to rise by 8% per year forever. The market
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Assume there are no brokerage costs in purchasing or selling.
(a) If you pay a price of $x for the painting now and sell it in a year, how much has it cost you to hold the painting rather than to have loaned the $x at the market interest rate?
(b) You would be willing to pay $100 a year to have the painting on your walls. Write an equation that you can solve for the price x at which you would be just willing to buy the painting.
(c) How much should you be willing to pay to buy the painting?
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