- CFA Exams
- CFA Exam: Level II 2021
- Study Session 15. Alternative Investments
- Reading 39. Private Real Estate Investments
- Subject 4. The income valuation approach
CFA Practice Question
Which statement is true regarding growth rate?
B. The discount rate used in the DCF method is a growth implicit rate, but the capitalization rate is not.
C. Both rates are growth implicit rates.
A. The capitalization rate is a growth implicit rate but the discount rate is not.
B. The discount rate used in the DCF method is a growth implicit rate, but the capitalization rate is not.
C. Both rates are growth implicit rates.
Correct Answer: A
The DCF applies an explicit growth rate - the discount rate does not consider growth.
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