You are considering the purchase of real estate that will provide perpetual income that should average $53,000 per year

Finance Aug 16, 2020

You are considering the purchase of real estate that will provide perpetual income that should average $53,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio's? The T-bill rate is 5% and the expected market return in 10.0%.

Expert Solution

Value of real estate= Cash flow in perpetuity / Discount rate

= 53000/ 10%

= $530000

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