CFA Practice Question

There are 195 practice questions for this study session.

CFA Practice Question

Select the correct statements about cap rate.

I. It is like a snapshot at a point in time of the relationship between NOI and value.
II. The reciprocal of the cap rate is analogous to the P/E for a stock.
III. The lower the cap rate, the greater income growth potential of a property.
Correct Answer: I, II and III

User Contributed Comments 2

User Comment
czar Please could someone explain B and C
rlabog B - Price is equal to market value and NOI can be considered the earnings of the property so in P/E terms the cap rate is NOI/Market Value or Earnings/Price. So the reciprocal would be the inverse of Earnings/Price which is Price/Earnings.

C - Value = NOI/Cap Rate - if the denominator decreases, the overall value of the property will increase
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