How is Land Shark's return calculated if it wins the auction?

• A. Return is the difference between the estimated value of the property and its bid amount.
• B. Return equals the bid amount minus the estimated value of the property.
• C. Return is equal to the sum of the estimated value and the bid amount.
• D. Return is equal to the estimated value of the property.

Answer: (A)

The key idea is that profit from winning an auction is what you can sell the asset for minus what you paid. Here, the estimated value is the expected selling price (modeled as a random variable in Monte Carlo risk analysis), and the bid amount is the purchase cost. If Land Shark wins, the return is estimated value minus the bid amount. This captures both upside and cost: you gain if value > bid, and you lose if bid exceeds value. The other formulations don’t reflect profit correctly—reversing the order would imply cost over value, adding the two amounts ignores subtracting the purchase price, and taking only the estimated value ignores the money actually spent.