Instruction 5 -Referring to Instruction 5

question 163

Short Answer

Instruction 5.3
There are two houses with almost identical characteristics available for investment in two different neighbourhoods with drastically different demographic composition. The anticipated gain in value when the houses are sold in 10 years has the following probability distribution:
Returns
$$\begin{array} { | c | c | c | } \hline \text { Probability } & \text { Neighbourhood A } & \text { Neighbourhood B } \\\hline 0.25 & - \$ 22,500 & \$ 30,500 \\\hline 0.40 & \$ 10,000 & \$ 25,000 \\\hline 0.35 & \$ 40,500 & \$ 10,500 \\\hline\end{array}$$
-Referring to Instruction 5.3,what is the total variance of value gain if you invest in both houses?

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, particularly in terms of liquidity and financial planning.

Present Value

The value in today's dollars of a future sum of money, adjusted for interest or inflation.

Share Of Stock

Represents ownership in a corporation, giving the holder a claim on part of the company’s assets and earnings.

Discount Rate

The financial rate used to convert future cash flows into their present value during a discounted cash flow analysis.