What would we expect the be the market price

Reference no: EM133439442

Question: Consider the following contract, where you agree to pay somebody $200 per year, each year, for five years, beginning one year from now. On the final year of repayment (the fifth year), you are also expected to pay an additional $400 on top of the $200, making your full payment in the fifth year equal to $600. Assume that the interest rate is equal to 8%. Round all answers to two decimal places. Suppose that you could buy these contracts from people. You could pay a certain amount of money, and in return, you would own this contract which would make these payments to you.

What would we expect the be the market price for these contracts under efficient financial markets?

Reference no: EM133439442

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