Question
9. Heres something pretty crazy: In the late 1920s, England floated a special debt issue, comprised of bonds called consols. The government was saddled with
9. Heres something pretty crazy: In the late 1920s, England floated a special debt issue, comprised of bonds called consols. The government was saddled with heavy debt from the First World War, and so these bonds were designed to be attractive. The Exchequer (the British treasury) wanted investors to buy them, so the $1000 bonds paid whomever bought them 4% interest per year...forever! If interest rates are currently at 7% what would one of those consols be worth now if you could find one to buy?
1. Youve just inherited outright (that is, debt free) a Toronto Speciala small building with three two-bedroom flats (apartments) for rent. (Congratulations!) In a rather unusual arrangement with the current tenants, rent is not collected monthly but rather annually. Each unit is renting for $30,000/year, and youre collecting the upcoming years rent today. (Rent is always due in advance.) Your plan is to buy another such building, and you need collateral for a mortgage. As a result, youre wondering how much ten-years worth of income from your current building is worth in todays dollars, so that you have some idea of your financial worth when you go in and talk to a loan officer at the bank. (Assume interest rates over the next decade are expected to hover around 7%.)
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