Question

Consider two properties. Over the last six months both properties' NOI increased from $1,000 to $1,058. However, Property A had an Internal Rate of Return(IRR) standard deviation of 1.52 while Property B had 7.24. Briefly explain which property is riskier?

Answer 1

Property B is riskier due to its higher Internal Rate of Return standard deviation, implying more volatility and unpredictability in its returns compared to Property A.

Step-by-step explanation:

Between Property A and Property B, the one with the higher Internal Rate of Return (IRR) standard deviation is considered riskier. Property A, with an IRR standard deviation of 1.52, is less risky compared to Property B which has a significantly higher IRR standard deviation of 7.24.

This higher deviation indicates more volatility in the returns of Property B, which means its returns fluctuate more, potentially leading to higher but also less predictable outcomes. It's important to understand that risk is about the unpredictability of returns, and while high risk can lead to high returns, it can also lead to greater losses.