Question

Mr. Sam Golff desires to invest a portion of his assets in rental property. He has narrowed his choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mr. Golff has developed the following estimates of the cash flows for these properties.
    

Palmer Heights
Yearly Aftertax Cash Inflow (in thousands)				Probability
$	30				.2
	35				.2
	50				.2
	65				.2
	70				.2

  

Crenshaw Village
Yearly Aftertax Cash Inflow (in thousands)				Probability
$	35				.2
	40				.4
	50				.2
	60				.2

a. Find the expected cash flow from each apartment complex. (Enter your answers in thousands (e.g, $10,000 should be enter as "10").)
  

  
b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round your answers to 3 decimal places.)
  

  
c. Which apartment complex has more risk?
  

	Palmer Heights
	Crenshaw Village

Answer 1

fix =+A38-$C$44 D38 A В C D E F G Н К 36 Palmer Heights Expecte cash Expecte (Еxpected cash Probability flows [rxP(r)d cash flows)x(cash flows-u)2 cash flows- [(P(r) 0.2$ 0.2 $ flows-H (20) $ 6 S 7 $ (15) $ 37 Cash 38 $ 39 $ 400 $ 30 80 Standard deviation Mean 225 $ Coefficient of variation 35 45 0.320 Coefficient of variation 40 $ 0.2$ 10 $ $ $ 50 -16 / 50 0.2 $ 0.2 $ 13 $ 14 $ 15 $ 41 $ $ 65 225 45 42 $ 400 S 70 20 80 43 $ 44 Expected cash 50 Variance (a^2) $ 45 250 Standard deviation (a) $ 46 16 Crenshaw Village Expecte cash Expecte Probability flows [rxP(r)dcash flows- (10) $ (5) $ (Expected cash cash flows- flows)x(cash flows-u)A2 100 S 25 $ (P(r)] 0.20 $ 0.40 $ 48 Cash 49 $ 50 $ 7 $ 35 20 Standard deviation Mean 16 $ Coefficient of variation 40 10 0.200 Coefficient of variation 51 $ 0.20 $ 10 $ 5 S $ 50 25 5 0.20 $ 52 $ $ 9/45 225 60 12 15 45 53 54 Expected cash $ 45 Variance (oA2) $ Standard deviation (o) 55 80 56 9 57 Palmer Heights is more riskier. It has higher COV

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