Question

You own the note shown here: Payable to Bearer: $100 on May XX, 2021 Whoever owns...

You own the note shown here:
Payable to Bearer:
$100 on May XX, 2021

Whoever owns this note a year from now will be given $100 at that time. If you own this note today but want money today, how would you determine a fair price at which to sell it? Explain.

Homework Answers

Answer #1

As the note is negotiable instrument(NI) and NI is also a bearer note, so one can endorse it to other, it will work as security for them. Or one can encash it from bank, after deducting bank charges, bank will remit remaining amount.

Fair price would be determined by opportunity cost ie. Risk free return.

If you want to sell it and determine fair price of the note then, other will charge you certain sum of amount ie. which he could earn from risk free investment.

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