Final answer:
With yield capitalization, the overall value is estimated by adding together the Present worth of the income and the present worth of the reversion of capital. Option C
Step-by-step explanation:
In yield capitalization, the overall value of an investment is determined by calculating the sum of two components: the present worth of the income and the present worth of the reversion of capital.
These components rely on discounting future amounts to their present values by applying a chosen interest rate that reflects the opportunity cost of capital and any associated risk premiums. Generally, this discounting is carried out at a rate which the investor finds suitable for valuing the future payments, after considering other available financial investment opportunities and the risk involved.
To arrive at the overall value, one would specifically calculate the present value of all projected future cash flows (such as rental incomes or profits) during the holding period of the investment. Then, this value is added to the present value of the expected proceeds from the sale or reversion of the asset at the end of the investment period, also known as the terminal value or reversionary value.
Using a discount rate, which in this example is 15%, these future amounts are translated into their actual worth in today's dollars, allowing for an analysis that considers the time value of money. Option C