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Question
The table below shows the projected cash flows (including reversion) for Property A and Property B. If both properties sell at fair market value for a cap rate (initial and terminal cash yields) of 8%, then which statement below correctly describes the relative investment risk in the two properties?| Annual net cash flow projections for two properties ($ millions) | ||||||||||
| Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| A | $1.0000 | $1.0300 | $1.0609 | $1.0927 | $1.1255 | $1.1593 | $1.1941 | $1.2299 | $1.2668 | $18.10 |
| B | $1.0000 | $1.0000 | $1.0000 | $1.0000 | $1.0000 | $1.0000 | $1.0000 | $1.0000 | $1.0000 | $13.50 |
Answer
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