Person D wanted a custom-built recording studio in his home. He asked local contractors for bid submission. The lowest bid was of person A. They both discussed the type and quality of the material to be used. Person D asked for a better quality of material within the bid price. They also discussed the starting date for the construction work. Two weeks later, D changed his mind to carry out the plan and A filed a suit in response. To find: The procedure to terminate an offer.

Question

An individual is investing in a market where spot rates and forward rates apply. In this market, if at time t=0 he agrees to invest £5.3 for two years, he will receive £7.4 at time t=2 years. Alternatively, if at time t=0 he agrees to invest £5.3 at time t=1 for either one year or two years, he will receive £7.5 or £7.3 at times t=2 and t=3, respectively. Calculate the price per £5,000 nominal that the individual should pay for a fixed-interest bond bearing annual interest of 6.6% and is redeemable after 3 years at 110%. State your answer at 2 decimal places.

Answer 1

Question

Chapter 12, Problem 3RE

Summary Introduction

Case summary: Person D wanted a custom-built recording studio in his home. He asked local contractors for bid submission. The lowest bid was of person A. They both discussed the type and quality of the material to be used. Person D asked for a better quality of material within the bid price. They also discussed the starting date for the construction work. Two weeks later, D changed his mind to carry out the plan and A filed a suit in response.

To find: The procedure to terminate an offer.

Summary Introduction

Case summary: Person D wanted a recording studio custom-built in his home. He asked local contractors for bid submission. The lowest bid was of person A. They both discussed the type and quality of material to be used. Person D wanted a better quality of material within the bid price. Person A said that he would check. They also discussed the start date for the construction work. Two weeks later, D changed his mind to carry out with the plan, and A filed a suit in response.

To find: Explain whether the offer even terminated in this case.

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