If the Market Value Cap Rate Based on NOI) on a Certain

question 2

Multiple Choice

If the market value cap rate based on NOI) on a certain type of property is 11%, capital improvement expenditures are typically 1% of property value per year, and you expect the property to appreciate at 3% per year, what discount rate total return) should be applied to determine the market value in a multi-year DCF analysis?

• A) 3%
• B) 10%
• C) 11.5%
• D) 13%
• E) 11%

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Definitions:

Substitution Effect

The alteration in buying behaviors resulting from shifts in relative prices, prompting consumers to swap costlier products with less expensive options.

Higher Wage

An increased rate of pay or salary for employees, often sought after in negotiations or as a result of economic or institutional changes.

Leisure Time

Time that an individual can spend at their own discretion, not occupied by work or domestic responsibilities.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with less costly alternatives.