Accredited Wealth Management Advisor Practice Exam

To determine the market value of the Sierra Blanca apartment complex using the capitalization (cap) rate, one can apply the formula:

Market Value = Net Operating Income (NOI) / Cap Rate.

In this case, the provided cap rate is 9%, which can be represented as 0.09 when calculating. The market value directly derives from knowing the net operating income. If we multiply the net operating income by the inversion of the cap rate (which is 1 divided by the cap rate), we can ascertain the market value effectively.

Assuming that the calculation leads to a result of approximately $3,560,667 when you input the appropriate net operating income into the equation, then this indicates that the value aligns with the first choice provided. This choice represents the correct application of the cap rate to determine market value, reflecting a sound understanding of how to utilize financial metrics in the real estate market.

In real estate evaluation, the cap rate is a critical metric as it reflects the return on investment expected from the property, providing an indication of the risk and potential income associated with it. Thus, a correct interpretation and application of the cap rate to net operating income will point towards the accurate market valuation of the property in question.