Equilibrium rate of return on assets-equation of yield

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In an economy where the equilibrium rate of return on assets is 5 per cent per year, suppose there are three assets A, B and M. A is an acre of land and has an annual cash flow of $50 (received at the end of the year) and is not expected to appreciate or depreciate. B is a barrel of maturing wine. It is expected to appreciate by 8 per cent in value over the year and has an annual cash flow of minus $30 (storage costs, payable at the end of the year). M is a car. It yields a cash flow of $100 (received at the end of the year) but is expected to depreciate in value by 5 per cent over the year. What are the values of these three assets? [Hint: use the equation of yield: i = (d + ?p)/p]

Reference no: EM13796882

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