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In Business / College | 2025-07-06

The formula to express the relationship between income and value is:
A. Income = Value X Capitalization rate.
B. Income = Value/Capitalization rate
C. Value = Income X Capitalization rate
D. Value = Capitalization Rate/ Income

Asked by enrique0394

Answer (1)

The relationship between income, value, and capitalization rate is analyzed.
The correct formula is Value = Income / Capitalization Rate, which rearranges to Income = Value × Capitalization Rate.
Comparing the formula with the given options, option Oa matches the correct relationship.
The correct formula is Income = Value × Capitalization rate ​ .

Explanation

Understanding the Relationship Let's analyze the relationship between income, value, and capitalization rate to determine the correct formula.

The Correct Formula The fundamental formula in real estate that connects these three is: Value = Income / Capitalization Rate. We can rearrange this formula to solve for Income: Income = Value × Capitalization Rate.

Comparing with Options Now, let's examine the given options:


Oa. Income = Value × Capitalization rate Ob. Income = Value / Capitalization rate Oc. Value = Income × Capitalization rate Od. Value = Capitalization Rate / Income
Comparing these with the correct formula, we see that option Oa matches.

Final Answer Therefore, the correct formula to express the relationship between income and value is Income = Value × Capitalization rate.

Examples
In real estate, understanding the relationship between income, value, and capitalization rate is crucial for investment decisions. For example, if a property generates an annual income of $50,000 and similar properties in the area have a capitalization rate of 5%, the estimated value of the property would be calculated as Value = Income / Capitalization Rate = $50,000 / 0.05 = $1,000,000. This valuation helps investors determine if the property is priced appropriately and whether it aligns with their investment goals. This formula is also used to estimate the income a property should generate based on its value and the prevailing capitalization rate in the market.

Answered by GinnyAnswer | 2025-07-06

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