Problem 1
Suppose asset \(A\) can be sold for \(\$ 11\) next period. If assets similar to \(A\) are paying a rate of return of \(10 \%,\) what must be asset A's current price?
Problem 2
A house, which you could rent for \(\$ 10,000\) a year and sell for \(\$ 110,000\) a year from now, can be purchased for \(\$ 100,000\). What is the rate of return on this house?
Problem 3
The payments of certain types of bonds (e.g., municipal bonds) are not taxable. If similar taxable bonds are paying \(10 \%\) and everyone faces a marginal tax rate of \(40 \%,\) what rate of return must the nontaxable bonds pay?
Problem 4
Suppose that a scarce resource, facing a constant demand, will be exhausted in 10 years. If an alternative resource will be available at a price of \(\$ 40\) and if the interest rate is \(10 \%,\) what must the price of the scarce resource be today?
