Affiliate Broker Tennessee (TN PSI) National Practice Exam `

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Study for the Affiliate Broker Tennessee National Exam. Practice with flashcards and multiple choice questions, with hints and explanations. Prepare well for your licensing exam!

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If a property's income value is $200,000 and its net operating income is $40,000, what is the capitalization rate?

  1. 10%

  2. 15%

  3. 20%

  4. 25%

The correct answer is: 20%

To calculate the capitalization rate, the formula used is: Capitalization Rate = Net Operating Income (NOI) / Property Value In this case, the property's income value is given as $200,000, and the net operating income is $40,000. By substituting these values into the formula: Capitalization Rate = $40,000 / $200,000 When performing the division, you find that the capitalization rate equals 0.20, or 20%. This indicates that the property is expected to generate a return of 20% on its value annually based on its net operating income. Understanding this metric is vital for investors as it helps them assess the profitability and risk associated with a property relative to its price.

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