Question

In a real state market where you have the average price of the houses, the average growth rates for the rents, and the average monthly rent charged by tenants, how can you estimate the average discount rate used in that matket to determine houses’ price? Explain

Answer 1

The Avarage Discount Rate determines the future value of the present projected cash flow. it gives a realistic figure. this helps to take invesrrment decision.

The given question referes to the real estate market.

the decision to invest in house is highly inflouenced by

a) Amount of Investment

b) Future Price of Investment

c) Present Rate of Rent

d) Present Interest Rate of Housing Loans

when the cash ouflow due to payment of rent superceeds the cash outflow of due to interest on housing loan, then buying a house is a viable solution.

when the cash outflow due to payment of rent less than the cash outflow due to interest on housing loan, then going for rented house is viable decision.

hence here, the avarage growth in the rent can be treated as discouting factor.