Question

A property is valued at $200,000 using a 6% capitalization rate. If an investor wants an 8% return, he would only be willing to pay: Select one:

a. $120,000
b. $150,000
c. $160,000
d. $225,000

Answer 1

To calculate the price an investor would be willing to pay for a property based on their desired return, divide the net operating income by the desired return. In this case, the investor would only be willing to pay $150,000.

Step-by-step explanation:

To calculate the price an investor would be willing to pay for a property based on their desired return, you can use the formula: Property Value = Net Operating Income / Capitalization Rate. In this case, the property is valued at $200,000 using a 6% capitalization rate, so the Net Operating Income would be $200,000 * 6% = $12,000. To find the price the investor would be willing to pay for an 8% return, we divide the Net Operating Income by the desired return: $12,000 / 8% = $150,000. Therefore, the investor would only be willing to pay $150,000.