Calculate the price-torent ratio

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Reference no: EM131966096

1. Consider a hypothetical city. An apartment in this city rents for a $14,000/year. Assume that the interest rate is 7%.

(a) Assuming no expected rental rate growth, taxes or maintenance cost, calculate the value (potential sales price) of the apartment. Also calculate the price-torent ratio.

(b) Like the first part, but assume now that the expected growth rate of rents is 2%.

i. -3% (expected negative price growth) ?

ii. 5%?

(d) What happens to the value of the apartment and the price to rent ratio when the expected growth rate approaches 7%.

Reference no: EM131966096

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