Finance
In Montana, a 'cap rate' and a 'discount rate' are both used in income property analysis but differ in that:
AThey are the same concept used interchangeably
BThe cap rate converts a single year's income to value (direct capitalization); the discount rate (or yield rate) is used in DCF analysis to calculate the present value of future income streams over a holding period✓ Correct
CThe discount rate applies to residential and the cap rate to commercial only
DThe cap rate includes a risk premium while the discount rate does not
Explanation
Cap rate = NOI / Value (for one stabilized year). Discount rate (yield rate) converts projected multi-year income streams and terminal value to present value in DCF analysis. Both reflect risk and return requirements but are used in different analytical frameworks.
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