Michigan Real Estate Exam Practice Question
An investor estimates an income property's operating income at $12,000. If the desired rate of return is 12%, what is the property's market value?
Correct Answer: A
Rationale: To find the market value of the property, the formula used is Market Value = Operating Income / Rate of Return. Here, the operating income is $12,000, and the desired rate of return is 12% (or 0.12).
Calculating this gives:
Market Value = $12,000 / 0.12 = $100,000.
Option A is correct as it matches this calculation.
Option B ($110,000) implies a lower return than 12%, while Option C ($144,000) suggests an unrealistically high return of 8.33%. Option D ($120,000) also indicates a return of only 10%, which does not meet the investor's requirement. Thus, only Option A accurately reflects the desired return based on the given operating income.
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