Unit 8 Risk PDF

**[Unit 8]** **[Risk]** **Property related numerics** The property market is increasingly dominated by institutional investors who require periodic **performance measures** of their investment portfolios. Property performance needs to be measured and **monitored** so as to ensure an organisation...

**[Unit 8]** **[Risk]** **Property related numerics** The property market is increasingly dominated by institutional investors who require periodic **performance measures** of their investment portfolios. Property performance needs to be measured and **monitored** so as to ensure an organisation′s business and property strategies/goals/objectives are being achieved. Like any investment, we need to be able to measure performance not only in order to ascertain whether, or not, it is meeting expectations, but also to be able to compare it against other property investments and other investment categories, e.g. calculating the performance of a group of properties **relative** to a benchmark for a particular market, sector or region, or comparing the performance of a property investment against an equity investment. - **Cap rate (capitalisation rate)** - **Profitability index** - **IRR (recall from Unit 4 - Decision-Making Approaches/Capital Budgeting)** **Risk** **Risk** implies future uncertainty about deviation from expected earnings or an expected outcome. **Risk** measures the uncertainty that an investor is willing to take to realise a gain from an investment. **Risks** are of different types and originate from different situations. Risk is the chance that an investment\'s actual return will be different from expected. **Risk** includes the possibility of losing some or all of the original investment. Starting a business always involves some **risk**-**taking**, as does purchasing property. **Risks** are of different types and originate from different situations and include: - Credit risk - Market risk - Operational risk - Liquidity risk - Business risk - Reputational risk - Systemic risk - Moral hazard There are ways of minimising or even negating some of or all risk, e.g. diversification, derivatives, and systems that highlight unusual activity. - **Measures of central tendency** Steps to finding the median for a set of data: - Arrange the data in increasing order - Find the location of median in the ordered data by (*n* + 1) / 2 - If the sample size is an odd number then the location point will produce a median that is an observed value as in the example above.  If sample size is an even number, then the location will require one to take the mean of two numbers to calculate the median.  The result may or may not be an observed value as the example below illustrates. For the data set: 69, 76, 76, 78, 80, 82, 86, 88, 91, 95 Mean = (69+76+76+78+80+82+86+88+91+95)/10 = 82.1, With *n* = 10, the median position is found by (10 + 1) / 2 = 5.5. Thus, the median is the average of the fifth (80) and sixth (82) ordered value and the median = 81, Mode = 76 - **Normal distribution** Definition: A normal distribution is a function that represents the distribution of many random variables as a symmetrical bell-shaped graph. /var/folders/4w/2ljr1fmj3czfrxpzb41y\_kl40000gn/T/com.microsoft.Word/WebArchiveCopyPasteTempFiles/index.gif - **Standard deviation**  - **Coefficient of variance** Coefficient of variation (CV) = (standard deviation) / (expected value)