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A house in Westchester is offered for sale at $1,000,000. Interest-only mortgages (you borrow money and simply pay the interest each year, no repayment of
A house in Westchester is offered for sale at $1,000,000. Interest-only mortgages (you borrow money and simply pay the interest each year, no repayment of principal) are 4% (annual compounding), and the house can be rented out for $5,000 per month. Real estate taxes to be paid by the owner are $10,000 per annum. Find an upper bound for the one-year forward price for the house. Assume any other interest rates you need are positive. State any assumptions made.
Could someone give some hints about this problem? Thank you very much.
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