3) A property can be purchased for 20 000 000 today. A real estate analyst is analyzing the expected IRR and risk, measured as the standard deviation, of the real estate investment by projecting five different scenarios as follows: Severe recession: NOI will be 1 000 000 the first year, and then decrease 4 percent per year until year five. The property will sell for 16 000 000 in year five. The probability for this scenario is 15 percent. Moderate recession: NOI will be 1 000 000 the first year, and then decrease 2 percent per year until year five. The property will sell for 18 000 000 in year five. The probability for this scenario is 25 percent. Baseline forecast: NOI will be level 1 000 000 per year for the next five years. The property will sell for 20 000 000 in year five. The probability for this scenario is 35 percent. Moderate expansion: NOI will be 1 000 000 the first year, and then increase by 2 percent per year until year five. The property will sell for 22 000 000 in year five. The probability for this scenario is 20 percent. Strong boom expansion: NOI will be 1 000 000 the first year, and then increase 4 percent per year until year five. The property will sell for 24 000 000 in year five. The probability for this scenario is 5 percent. A) The expected IRR is 4.405% and the standard deviation is 2.232%. B) The expected IRR is 4.405% and the standard deviation is 3.188%. C) The expected IRR is 4.405% and the standard deviation is 2.852%. D) The expected IRR is 0% and the standard deviation is 0.050%. E) None of the above (A, B, C, D) is close to be correct. 3) A property can be purchased for 20 000 000 today. A real estate analyst is analyzing the expected IRR and risk, measured as the standard deviation, of the real estate investment by projecting five different scenarios as follows: Severe recession: NOI will be 1 000 000 the first year, and then decrease 4 percent per year until year five. The property will sell for 16 000 000 in year five. The probability for this scenario is 15 percent. Moderate recession: NOI will be 1 000 000 the first year, and then decrease 2 percent per year until year five. The property will sell for 18 000 000 in year five. The probability for this scenario is 25 percent. Baseline forecast: NOI will be level 1 000 000 per year for the next five years. The property will sell for 20 000 000 in year five. The probability for this scenario is 35 percent. Moderate expansion: NOI will be 1 000 000 the first year, and then increase by 2 percent per year until year five. The property will sell for 22 000 000 in year five. The probability for this scenario is 20 percent. Strong boom expansion: NOI will be 1 000 000 the first year, and then increase 4 percent per year until year five. The property will sell for 24 000 000 in year five. The probability for this scenario is 5 percent. A) The expected IRR is 4.405% and the standard deviation is 2.232%. B) The expected IRR is 4.405% and the standard deviation is 3.188%. C) The expected IRR is 4.405% and the standard deviation is 2.852%. D) The expected IRR is 0% and the standard deviation is 0.050%. E) None of the above (A, B, C, D) is close to be correct
