The table below shows two 10-year cash flow projections (in $ millions, including reversion) for the same property. The upper row is the projection that will be presented by the broker trying to sell the building, the bottom row is the realistic expectations. Suppose that it would be relatively easy for any potential buyers to ascertain that the most likely current market value for the property is about $10 million. What is the most likely amount of "disappointment" in the ex post annual rate of total return earned by an investor who buys this property believing the broker's cash flow projection?

\begin{array} { | l | r | r | r | r | r | r | r | r | r | r | } \hline \text { Year } & 1 & 2 & 3 & 4 & 5 & 6 & 7 & \mathbf { 8 } & 9 & 10 \\\hline \text { Presert } & \$ 1.00 & \$ 1.03 & \$ 1.06 & \$ 1.09 & \$ 1.12 & \$ 1.15 & \$ 1.19 & \$ 1.22 & \$ 1.26 & \$ 14.7 \\\text { ted } & 00 & 00 & 09 & 27 & 55 & 93 & 41 & 99 & 68 & 439 \\\hline \text { Realist } & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 1.00 & \$ 11.0 \\\text { ic } & 00 & 00 & 00 & 00 & 00 & 00 & 00 & 00 & 00 & 000 \\\hline\end{array}

(a) 0.00%
(b) 1.00%
(c) 3.00% = Presentation IRR - Realistic IRR = (10% + 3%) - (10% + 0%) = 13% - 10%.
(d) 26.68%

For the Same Property as Above, Suppose the Underwriting Criteria

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