Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. compute the expected return and standard deviation

Compute the expected return and standard deviation for the following properties. The current price of...

80.2K

Verified Solution

Question

Finance

Compute the expected return and standard deviation for the following properties. The current price of each property is $500,000. Which has the better risk-return tradeoff?

Property A:

  • Pessimistic: NOI stays flat at $50,000 per year for the next 5 years. Resale price is $500,000 in year 5. Probability = 25%.
  • Most Likely: NOI starts at $50,000 the first year and grows by 1% for the next 5 years. Resale price is $525,000 in year 5. Probability = 50%.
  • Optimistic: NOI starts at $50,000 the first year and grows by 3% for the next 5 years. Resale price is $575,000 in year 5. Probability = 25%.

Property B:

  • Pessimistic: NOI starts at $50,000 the first year and decreases by 2% for the next 5 years. Resale price is $475,000 in year 5. Probability = 25%.
  • Most Likely: NOI starts at $50,000 the first year and grows by 1% for the next 5 years. Resale price is $525,000 in year 5. Probability = 50%.
  • Optimistic: NOI starts at $50,000 the first year and grows by 5% for the next 5 years. Resale price is $600,000 in year 5. Probability = 25%.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Physics
1.2K views

In an Otto cycle air is compressed from an initial pressure 120 kPa and temperature 370...

Advance Math
1.2K views

Find the first four nonzero terms in a power series expansion about x = 0 for...

Biology
1.2K views

Through what process can scientists artificially change the DNA code of organisms natural selection A...

Biology
1.2K views

on Monday s class you were asked to review a list of debate topics titled...

Accounting
1.2K views

Lavage Rapide is a Canadian company that owns and operates a large automatic carwash facility...

Accounting
1.2K views

Frank Weston, supervisor of the Freemont Corporations Machining Department, was upset after being reprimanded for...

Accounting
1.2K views

b. Determine the return on common stockholders' equity. %

Accounting
1.2K views

The Office Supplies account started the year with a $3,925 balance. During 2019, the company...

Accounting
1.2K views

Because oligopoly markets have only a few sellers, the actions of any one seller ...

Accounting
1.2K views

A stock is trading at $85 per share. The price just paid a $7 dividend...

Finance
1.2K views

There is a certain order in which assets and liabilities are recorded in the balance...

Accounting
1.2K views

The annual Budgets provides for Estimated Revenues $12,500,000 and appropriation $11,900,000.