Suppose as a "rule of thumb" one commonly assumes that the value of land equals the 14-fold of its annual rental income. Assume the current rent is also equal what one would commonly expect for the future.
(a) What is the implicit discount rate for such a "rule of thumb?"
(b) Now assume the discount rate changes to 5.5%. What "rule of thumb" ratio between land value and annual rental income would you expect? Calculate.