PessimisticNOI will be $290,000 the first year, and then decrease 2 percent per year over a five-year holding period. The property will sell for $2.16 million after five years.

Most likelyNOI will be level at $290,000 per year for the next five years (level NOI) and the property will sell for $2.90 million.

OptimisticNOI will be $290,000 the first year and increase 3 percent per year over a five-year holding period. The property will then sell for $4.00 million.

The asking price for the property is $2.90 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.