Question: Suppose a condominium can be rented for $1,000 a month, it depreciates at 10 percent per year, and the annual interest rate is 5 percent.

Suppose a condominium can be rented for $1,000 a month, it depreciates at 10 percent per year, and the annual interest rate is 5 percent. Let the down-payment rate and the annual growth rate of condominium prices be given by the table below:

(a) For each case, compute the value of the housing price according to the simple theory developed in the chapter.
(b) Based on your results, discuss the sensitivity of condo prices to the expected capital gain.
(c) Based on your results, discuss the sensitivity of condo prices to the down-payment rate.

Growth rate of condo prices (percent) Price of the condo Down-payment rate, X (percent) 20 20 20 20 100 10 10

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