Which term is commonly used as another name for cap rate?

Which term is commonly used as another name for cap rate?

• A. Yield
• B. Return
• C. Interest Rate
• D. Coupon Rate

Answer: (A)

Cap rate is a yield-type measure that expresses the return on a real estate investment as a percentage of value. In practice, this is commonly called yield because it mirrors the notion of an annual return on the asset. The cap rate is calculated as net operating income divided by property value (or purchase price), so it provides a straightforward way to compare properties and estimate value: value ≈ NOI / cap rate. It’s a simple, cash-flow-based metric that ignores financing and assumes steady income. Why the other terms don’t fit as well: return is a broader notion of profit that can include growth, debt, and cash flow over time, not the pure, cash-only yield the cap rate represents. Interest rate refers to borrowing costs, not the property’s income yield. Coupon rate is specific to bonds and fixed-rate debt, not real estate investment yields.

Cap rate is a yield-type measure that expresses the return on a real estate investment as a percentage of value. In practice, this is commonly called yield because it mirrors the notion of an annual return on the asset. The cap rate is calculated as net operating income divided by property value (or purchase price), so it provides a straightforward way to compare properties and estimate value: value ≈ NOI / cap rate. It’s a simple, cash-flow-based metric that ignores financing and assumes steady income.

Why the other terms don’t fit as well: return is a broader notion of profit that can include growth, debt, and cash flow over time, not the pure, cash-only yield the cap rate represents. Interest rate refers to borrowing costs, not the property’s income yield. Coupon rate is specific to bonds and fixed-rate debt, not real estate investment yields.