b) Consider the following information on several apartment buildings that were recently sold.

	Property A	Property B	Property C
#Units	20	50	70
Measured Capitalization (cap) Rate	4%	4.5%	5%
Selling price	3,000,000	$7,000,000	10,000,000

Assume that the annual rent per unit is $10,000, operating cost are $4,000 per unit. Ignore the effects of risk and uncertainty.

i) Using the income approach to market value, estimate the market value of properties A- C. (Do not use information on the selling price.)

ii) If many buildings like A, B and C are available and they differ only in the number of units, do you think that this market is in equilibrium?

iii) A simple rule of thumb concerning cap rates is that they are equal to the borrowing interest rate plus a constant mark up. If interest rates were to rise by 1 percentage point over the next five years, how much capital gain or loss would the owner of B experience?