- CFA Exams
- CFA Level I Exam
- Topic 8. Alternative Investments
- Learning Module 4. Real Estate and Infrastructure
- Subject 2. Real Estate Investment Characteristics
CFA Practice Question
The cost approach establishes the market value of a property by:
B. adjusting the cost of similar properties to account for obvious differences in the properties.
C. adjusting the replacement cost of the property for any functional depreciation in the property.
D. obtaining estimates of the replacement cost from several insurance companies.
A. adjusting the original purchase cost for any functional depreciation in the property.
B. adjusting the cost of similar properties to account for obvious differences in the properties.
C. adjusting the replacement cost of the property for any functional depreciation in the property.
D. obtaining estimates of the replacement cost from several insurance companies.
Correct Answer: C
In determining the value of a property using the cost approach, the replacement cost of the property is determined. This replacement cost is then adjusted for any functional depreciation of the property.
User Contributed Comments 4
| User | Comment |
|---|---|
| Hervz | Wouldn't D be a viable option to estimate the value of replacing the property as well? |
| CFALucille | yes but appraisers generally don't consult with insurance companies when doing the cost approach, probably because it would cost them something |
| rjh512 | D is missing that the replacement cost must be adjusted for depreciation. |
| 923029 | The replacement cost is what insurance base their premiums on. |