Case study and calculations for real estate and the city

| March 15, 2014

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CITC03H3?Assignment 2?Winter 2014
This question makes use of the excel workbook, 13WC03Assign2.xlsx, available from the course website. In this workbook, a Canadian investor evaluates an investment in rental housing in Vancouver or Montreal based on a repeat sales price index and the CPI rent index for those two metropolitan area. This question is worth 10 marks.
Your name:
(a) On the assumptions that the investor needs, at the outset (i) a sufficient bank account (working capital) and (ii) a loan-to-equity ratio not exceeding 80%, what down-payment and term of loan (up to 300 months) maximize expected return on wealth over the period from July 1990 to January 2014 for a rental investment in Vancouver? Explain your derivation.
(b) Quantify the risk involved in the investment in (a). Explain your calculations and your result.
(c) Would an investor have been better off investing in rental housing in the Montreal market over the same period?
Explain your calculations and your conclusion.
(d) Would an investment that is blended (diversified) across the Montreal and Vancouver perform better than a single
investment in either area? Explain your calculations and conclusion.
A fresh copy of this fillable form is available from course website. Complete answer using Microsoft Word within box
using font and paragraph formatting provided. Use tab button to move from box to box. Answers must be in your own words.
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