Suppose that beach houses are hypothetically leased from the government at a yearly lease rent of $2000KWD.$ These leases are traded in the market for a staggering $500,000$ KWD$.$ Note that the numbers used in this case are hypothetical. Consider the following aspects of the beach house leases:

$($a$)$ Assume that the lease will be held indefinitely, making it a perpetuity. The formula for the Net Present Value $($NPV$)$ of a perpetuity is NPV $=\frac{\text{N}\text{e}\text{t}\text{B}\text{e}\text{n}\text{e}\text{f}\text{i}\text{t}}{r},$ where $r$ is the discount rate. Given a discount rate of $5\%,$ estimate the Net Benefit that would justify the market value of $500,000KWD.$

$($b$)$ Based on your calculated Net Benefit, what does this imply about the yearly lease rent of $2000$ KWD$?$ Is it underpriced, overpriced, or fairly priced?

$($c$)$ Discuss the underpricing in the context of the beach houses leases. Why might the government set the yearly lease rent at this level?

$($d$)$ Could this pricing be sustainable in the long term? What risks and opportunities does it present?

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