6) Consider the following information about a parcel of real estate that has a cost of $1.0 million:
Annual Cash Flow Probability
$200,000 .4
$180,000 .6
a) What is the expected annual percentage return on this property?
Solution: 80,000 + 108,000 = $188,000
b) If an investor can borrow 70%of the value (cost) at 12% (interest only), what is the expected return on equity?
Solution: 34.67%