Lesson 10 Exercises – Rates and Factors Revisited (The Income Approach to Value)

Appraisal Training: Self-Paced Online Learning Session

Check Your Knowledge

Open All Solutions Close All Solutions

Match the item in the first column with the definition or formula in the second column.

  1. Annuity
  2. Capitalization Rate
  3. Cash-Flow Rate [ Re ]
  4. Effective Tax Rate  [ ETR ]
  5. Future Worth of One per Period [ FW1/P ]
  6. Market Rate of Return
  7. Mortgage Constant [ RM  |  ƒ ]
  8. Periodic Repayment [ PR ]
  9. Present Worth of One [ PW1 ]
  10. Present Worth of One per Period [ PW1/P ] (function)
  11. Sinking Fund Factor [ SFF ] (function)
  12. Sinking Fund Factor [ SFF ] (formula)
  1. = PR − i
  2. = SFF + i
  3. A stream of scheduled and predictable income or payment amounts.
  4. Any rate used to convert an estimate of future income to an estimate of value.
  5. Relationship between mortgage payments, including any amortization and interest, and the original amount of a loan.
  6. The level periodic payment or investment required to accumulate an amount of "one" in a given number of periods, including the accumulation of interest; the Amortization Rate.
  7. The ratio of the annual (pre-tax) cash flow to the investment and the equity investment. A single year's NIBR, less Annual Debt Service [ADS], divided by the equity investment. (NIBR – ADS) ÷ Down Payment
  8. = 1 ÷ SFF
  9. The relationship between dollars of tax and dollars of value.
  10. The typical return on an investment in a given type of property in a given market.
  11. The value today of a series of amounts of one due periodically in the future.
  12. The value today of a single amount of one due in the future.

  1. Annuity
    SOLUTION: C.
    A stream of scheduled and predictable income or payment amounts.
  2. Capitalization Rate
    SOLUTION: D.
    Any rate used to convert an estimate of future income to an estimate of value.
  3. Cash-Flow Rate [ Re ]
    SOLUTION: G.
    The ratio of the annual (pre-tax) cash flow to the investment and the equity investment. A single year's NIBR, less Annual Debt Service [ADS], divided by the equity investment. (NIBR – ADS) ÷ Down Payment
  4. Effective Tax Rate [ ETR ]
    SOLUTION: I.
    The relationship between dollars of tax and dollars of value.
  5. Future Worth of One per Period [ FW1/P ]
    SOLUTION: H.
    = 1 ÷ SFF
  6. Market Rate of Return
    SOLUTION: J.
    The typical return on an investment in a given type of property in a given market.
  7. Mortgage Constant [ RM  |  ƒ ]
    SOLUTION: E.
    Relationship between mortgage payments, including any amortization and interest, and the original amount of a loan.
  8. Periodic Repayment [ PR ]
    SOLUTION: B.
    = SFF + i
  9. Present Worth of One [ PW1 ]
    SOLUTION: L.
    The value today of a single amount of one due in the future.
  10. Present Worth of One per Period [ PW1/P ] (function)
    SOLUTION: K.
    The value today of a series of amounts of one due periodically in the future.
  11. Sinking Fund Factor [ SFF ] (function)
    SOLUTION: F.
    The level periodic payment or investment required to accumulate an amount of "one" in a given number of periods, including the accumulation of interest; the Amortization Rate.
  12. Sinking Fund Factor [ SFF ] (formula)
    SOLUTION: A.
    = PR − i