CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

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

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

User Contributed Comments 6

User Comment
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
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