Nature of Competition: Rate of Return
For the purpose of illustration, we herein calculate some rates of return. Particularly in conjunction with financial instruments, the term “ interest rate ” is used in place of “ rate of return .” In either name, the current price and the (expected) rate are inversely related, ceteris paribus . My house on the hill. Suppose my house in the rental market. I rationally believe that the residential service is valuable at $100 per annum “in real” “in the long run.” On the other hand, I set the value of time as 2% PA. Again, the value of time is as real as the time is. This is as opposed to that the “ time value of money ” in finance is "nominal." Question 1 : What price would I sell the house outright in the asset market at? The answer of rationality is “the PV ” (for present value) of the cash inflows in the undefined run of future. Unfortunately or rather fortunately, PV is not as straightforward to calculate as it appears to: there is the “ risk factor ” particul...