An investor has projected three possible scenarios for a project as follows:

PessimisticNOI will be $205,000 the first year, and then decrease 2 percent per year over a five-year holding period. The property will sell for $1.82 million after five years.

Most likelyNOI will be level at $205,000 per year for the next five years (level NOI) and the property will sell for $2.05 million.

OptimisticNOI will be $205,000 the first year and increase 3 percent per year over a five-year holding period. The property will then sell for $2.30 million.

The asking price for the property is $2.05 million. The investor thinks there is about a 30 percent probability for the pessimistic scenario, a 40 percent probability for the most likely scenario, and a 30 percent probability for the optimistic scenario.

Required:

a. Compute the IRR for each scenario. b. Compute the expected IRR. c. Compute the variance and standard deviation of the IRRs.