Question

A property valued at $350,000 has an annual net operating income of $43,750. What is the capitalization rate?

a. 8%
b. 10.50%
c. 11%
d. 12.50%

Answer 1

Answer: The capitalization rate is 12.5 %

Step-by-step explanation:

To calculate the capitalization rate, we use the formula:

`\text{Rate of capitalization}=\frac{\text{Income}}{\text{Value of property}}* 100`

We are given:

Net operating income = $ 43,750

Value of property = $ 350,000

Putting values in above equation, we get:

`\text{Rate of capitalization}=(43,750)/(350,000)* 100\\\\\text{Rate of capitalization}=12.5\%`

Hence, the capitalization rate is 12.5 %