4) (9 pts) Market value of capital, rate of return Consider a real estate company that owns an office building with 20,000 sq. ft of space. For every dollar of rental income, 30 cents go to pay for repair, maintenance, property management, taxes and insurance. The market rental rate is 10 dollars per square foot per year. The interest rate is 5 percent per year. a) What is the market value of the building? Show all work. (assume no-arbitrage asset pricing and that all rental payments are made annually, starting one year from now) b) Calculate the capital gains rate on the building, the financial rate of return on operating the building and the annual economic profit of the real estate company. Show all work. (Hint: to calculate the capital gains, compare building market price in year t to its market price next year using the method in part a) c) Now assume that the rental rate grows by 3 percent per year, starting from 10 dollars per square foot in the first year. Redo parts a) and b): calculate the market value of the building, the capital gains rate, the rate of return on the building and the annual economic profit. Show all work.