CAE Income Approach to Value 2

Question 1

The band of investment method derives the overall capitalization rate using:

Accepted Answer

A weighted average of mortgage and equity components

Answer

Only the equity return requirements of typical investors

Answer

Comparable sales data extracted from the open market

Answer

Government bond yields adjusted for investment risk

Question 2

Market extraction (abstraction) derives an overall capitalization rate by:

Accepted Answer

Dividing the NOI of comparable sales by their sale prices

Answer

Adding the mortgage constant to the equity dividend rate

Answer

Analyzing national real estate investment survey data

Answer

Applying a debt coverage ratio to the loan constant

Question 3

A property generates an NOI of $75,000 and recently sold for $937,500. What is the extracted overall capitalization rate?

Accepted Answer

8.0%

Answer

7.0%

Answer

9.0%

Answer

10.0%

Question 4

Yield capitalization differs from direct capitalization primarily in that it:

Accepted Answer

Incorporates anticipated future changes in income and value over time

Answer

Uses gross income rather than net operating income

Answer

Only applies to properties encumbered by long-term leases

Answer

Requires the assessor to identify comparable sales data

Question 5

The debt coverage ratio (DCR) method for deriving a capitalization rate requires knowing the:

Accepted Answer

Loan-to-value ratio, mortgage constant, and required DCR

Answer

Equity yield rate and projected appreciation rate

Answer

Gross rent multiplier and effective gross income

Answer

Terminal cap rate and projected holding period

Question 6

An assessor uses a 7.5% cap rate to value a property with a NOI of $90,000. The indicated value is approximately:

Accepted Answer

$1,200,000

Answer

$675,000

Answer

$900,000

Answer

$6,750,000

Question 7

The effective gross income multiplier (EGIM) is calculated by dividing:

Accepted Answer

Sales price by EGI

Answer

EGI by NOI

Answer

NOI by the capitalization rate

Answer

EGI by the sales price