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Designs a new financial instrument

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Reference no: EM131752591

A financial engineer designs a new financial instrument that she calls the PopSnap. This instrument gives the holder access to the following cashflows:

  • For the first 7 years, the holder receives $100 per year starting one year from today (a total of 7 payments).
  • The holder does not receive any cashflows for years 8 or 9.
  • Starting at the end of year 10, the holder receives $75 growing at a rate of 9% per year forever.
  • The holder has to pay a "service fee" of $15 every year starting at the end of year 2; this goes on forever.

The prevailing discount rate throughout is 10%. The financial engineer would like to determine a fair market price for this financial instrument. What do you suggest this price to be?

Reference no: EM131752591

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