Economics Question

A 2 bedroom apartment can be rented for $2400 per month. It depreciates at 10 percent per year and the annual interest rate is 5 percent. Consider the various required deposits (required by a bank before they will give you a loan) and growth rates of apartment prices given by the following table. Growth rate of prices Deposit rate $Price of Apartment (percent per annum) (Percent of price) UIGUI HUIN O 20 20 20 20 100 10 5 (a) In each case use an arbitrage condition to calculate the price of the apartment. (b) Discuss the sensitivity of apartment prices to expected capital gain. (c) Discuss the sensitivity of apartment prices to the deposit rate