Question
(A) Reginald is about to lease an apartment for 36 months. The landlord wants him to make the lease payments at the start of the
(A) Reginald is about to lease an apartment for 36 months. The landlord wants him to make the lease payments at the start of the month. The monthly payments are $1, 200 per month. The landlord says he will allow Reginald prepay the rent for the entire lease at a discount. The one time payment due at the beginning of the lease is $38, 336. What is the implied monthly discount rate for the rent? If Reginald is earning 1.2% on his savings monthly, should he pay the rent by month or make a one time payment?
(B) The Canadian Government has once again decided to issue a console (a bond with a never ending interest payment and no maturity date). The bond will pay $90 in interest at the end of each year, but it will never return the principal. The current discount rate for the Canadian Government's bonds is 8.5%. Why does the price go down when the interest rate rises? If the current discount rate for the bonds is 8.5%, what should the bond sell for in the market?
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