3.1 - Natural Resources and Land Flashcards
1
Q
Option price relationship
A
Option price = intrinsic value + time value
2
Q
Current Value of Improved Property
A
Current Value = (UpVal * UpProb) + [DownVal * (1 - UpProb)]
3
Q
Expected Return on Land
A
E(R) = [Pd * E(Rd)] + [(1 - Pd) * (E(Rnd)]
4
Q
Return on Equity
A
= net income / owners equity
5
Q
Return on Assets
A
= operating income / total assets
*also known as cap rate in real estate
6
Q
Historical Performance of Timberland and Farmland
A
Less volatility in returns
Strong risk adjusted performance (higher Sharpe ratio)
Little to no correlation to equities
