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 fixed nominal rental income 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 + θit,s + πit,s + ϒit,s + Κit,s + Φit,s
B. 1 + lt,s + θit,s + πit,s + Κit,s + Φit,s
C. 1 + lt,s + θit,s + πit,s
Correct Answer: B

This is analogous to the purchase of a nominal default-free government bond plus the uncertainty relating to the property (risk premium and liquidity premium). The credit risk premium ϒit,s should not be included.

User Contributed Comments 0

You need to log in first to add your comment.