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**CFA Practice Question**

The capitalization rate approach to valuing real estate is most similar to the following method of valuing common stock:

B. price-to-book ratio.

C. dividend discount model with zero growth.

D. dividend discount model with normal growth.

A. price-to-sales ratio.

B. price-to-book ratio.

C. dividend discount model with zero growth.

D. dividend discount model with normal growth.

Correct Answer: C

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**User Contributed Comments**
6

User |
Comment |
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anish |
Can somebody please explain this question.Thanks |

Nightsurfer |
P = D/k |

rufi |
yes that is right, coze it also assumes perpetuity |

magicchip |
Income streams are usually indexed, so normal growth may be the right way to approach. Just my ramblings. |

Shaan23 |
Direct cap estimates value of property based on the quality of net operating income. NOI = expected annual NOI divided by cap rate similar to C) |

khalifa92 |
DDM: P=D/r-g by subtracting g it becomes 0 growth |