Final answer:
Property B, with a higher Internal Rate of Return (IRR) standard deviation of 7.24 compared to Property A's 1.52, is the riskier investment due to the greater variability in its returns.
Step-by-step explanation:
Considering two properties with the same increase in Net Operating Income (NOI) but different Internal Rate of Return (IRR) standard deviations, we can assess which is riskier. Property A has an IRR standard deviation of 1.52, while Property B has a much higher standard deviation of 7.24. The standard deviation in the context of IRR measures the volatility or the variability of returns, which is a common proxy for investment risk.
Risk refers to the degree of uncertainty in the potential range of returns for an investment. A higher standard deviation indicates that the returns are more spread out over a larger range of values, indicating a higher level of risk. Therefore, although both properties have experienced the same increase in NOI, Property B, with the higher IRR standard deviation, is the riskier investment compared to Property A.
Investors seeking to understand the relationship between risk and return might consider the principle that high-risk investments typically offer the potential for higher returns to compensate for that increased risk. This does not necessarily mean that high risk guarantees low returns; the outcomes can vary widely, and so can the actual rates of return over time. The actual rate of return reflects how much an investment has earned or lost, considering both capital gains and interest, over a particular period.