Buy 8 Empty Lots

Multiple Choice

Buy 8 empty lots. At the end of 5 years you plan to sell all the real estate and you expect both houses and lots to appreciate in value.Owning and renting out houses will also provide rental income,but there will also be expenses such as repairs and insurance that would not be involved for empty lots.The amount of appreciation depends on the real estate market that you expect to be one of the three levels shown in the table below along with the expected payoff values (shown in thousands of dollars) . Assume that you estimate the following probabilities for the states of the real estate market: Based on the expected value criterion you should choose alternative:

A) 1.
B) 2.
C) 3.
D) 1 or 3 because they are tied.