CFA Practice Question

There are 136 practice questions for this study session.

CFA Practice Question

Which should be the discount rate for a developed economy government tenant that agrees to pay rental income that is indexed to inflation in a commercial lease?

lt,s: real interest rate
θit,s: inflation premium
πit,s: uncertainty related to future inflation
ϒit,s: credit risk premium
Κit,s: commercial real estate risk premium
Φit,s: commercial real estate liquidity premium
A. 1 + lt,s
B. 1 + lt,s + Κit,s + Φit,s
C. 1 + lt,s + θit,s + πit,s + ϒit,s + Κit,s + Φit,s
Explanation: This is analogous to the purchase of a real default-free government bond plus the uncertainty relating to the property (risk premium and liquidity premium).

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