ntroduction

A local commercial real estate business, Keystone Properties, has hired you as a quantitative analyst.

The owners are concerned that their traditional way of making decisions (experience and gut feel,

generally) is not allowing them to maximize the business's potential.They have hired you to help them

make a variety of sound decisions based on a scientific approach.

The company has provided you with as much information as they have, and it is up to you to determine

the best

quantitative approach

to answering their questions.The company has also made it clear that it

is

crucial that you explain analysis and calculations

in such a way that a group of people unfamiliar with

quantitative analysis can understand what you are doing and feel comfortable with the results.If you

just provide a numerical answer to their questions, while still helpful, this will not meet their

expectations for the project.

Deliverable

Keystone has requested that you answer their questions in the

form of a business report

in MS Word

format.Simply typing in answers to their questions below will be construed as a lack of professionalism.

The writing must be free of errors and easy to understand for someone unfamiliar with quantitative

analysis. The exact design of the report is up to you, as Keystone does not really care about the

aesthetics as long as you answer all of their questions in an organized and coherent report.Keystone

specifically requests that you include any equations and calculations that you had done to be completely

transparent.Any graphs or diagrams can be included in the body of the report or in an appendix as you

see fit.

1.

Keystone can only properly market a limited number of properties.They are trying to figure out

which property they should select to add to their portfolio among four candidates (and in so doing,

gain some insight into how to make such decisions in the future).There is some uncertainty as the

selling price (and therefore commission/profit) depends on the state of the real estate market 6

months in the future.Based on their experience, Keystone has provided an estimate of selling

prices for a "good" real estate market and a "bad" real estate market for the four candidate

properties (see below).Even with these estimates, though, Keystone managers are unsure which

property to choose.Keystone managers consider themselves to be optimistic about the future, but

would like to consider a variety of ways to make this decision.When asked how likely they think it is

that the market will be good, Keystone said "about a 60% chance".Keystone also mentioned that

they are curious about "opportunity loss", but they have no idea what this means or how to

incorporate it into their decision making process.Keystone also noted that they could pay for

market forecasts that will help predict good and bad markets, but they have not done so in the past.

They would like some help deciding whether to purchase the forecasts.