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1. A financial engineer designs a new financial instrument that he calls, the Stax. This instrument gives the holder access to the following cashflows: For
1. A financial engineer designs a new financial instrument that he calls, the Stax. 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? (8 marks)
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