Consider the following information on a real estate property with a value of $1 million.

Annual Cash Flow Probability (in percantages) (in dollars)

150,000 .5

90,000 .5

a. What is the expected return on this property (5 points)

b. If the investor can borrow 80% of the value of the property at an interest rate of 10 % what will be the expected return on equity? (10 points)

c. Should the investor borrow to finance the acquisition of the property or purchase the property with 100% equity? Explain (10 points)