Question #5350094

Discount rate question?

You are considering the purchase of real estate in the British Properties. It is expected to provide perpetual income that should average $50,000 per year. The Treasury bill rate is 5 percent, and the expected market risk premium is 7 percent. You believe its market risk is the same as it is for the market portfolio. If the Treasury bill rate were to increase to 8 percent, what would the discount rate for this potential investment be? Discount rate would be the required return right, so is it: 8% + 1 x 7% = 15%? Please provide an explanation for you answer, that would really help me understand this problem! Thanks in advance!

2013-04-16 21:24:29

TELL US , if you have any answer

There is NEVER a problem, ONLY a challange!

The is a free-to-use knowledgebase.
  The was started on: 02.07.2010.
  It's free to register. Once you are a registered user, you can ask questions, or answer them.
  (Unless registration you can just answer the questions anonymously)
  Only english!!! Questions and answers in other languages will be deleted!!

Cheers: the PixelFighters


C'mon... follow us!

Made by, history, ect.