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  6. In the following situation:
Question 21 / 22:  In the following situation:

Today (time 0)Next Year (Yr.1)
Probability100%50%50%
Value of Developed Property$1000$700$1300
Development Cost (exclu land)$800$800$800

Suppose no further value after next year, construction is instantaneous, the riskfree interest rate is 4%, the expected return (OCC) on unlevered investments in developed property is 7.5%, what is the value today of the land? And should development be undertaken now or should you wait.
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Real Estate Finance & Investment Final Exam 2006

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Attribution:  Geltner, David, and Tod McGrath. 11.431J Real Estate Finance and Investment, Fall 2006. (MIT OpenCourseWare: Massachusetts Institute of Technology), http://ocw.mit.edu/courses/urban-studies-and-planning/11-431j-real-estate-finance-and-investment-fall-2006 (Accessed 1 May, 2014). License: Creative Commons BY-NC-SA
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