Suppose a property has a cap rate of 10% and you can borrow at a mortgage constant of 11%. If you borrow 75% of the property price, what will be your equity yield?

Question

Quizplus · Accepted Answer

The equity yield, also known as the cash-on-cash return, can be calculated using the formula: Equity Yield = Cap Rate + (Cap Rate - Mortgage Constant) * (Loan-to-Value Ratio). Plugging in the given values: Equity Yield = 10% + (10% - 11%) * 75% = 10% - 0.75% = 9.25%. However, the correct calculation should be: Equity Yield = Cap Rate + (Cap Rate - Mortgage Constant) * (Loan-to-Value Ratio) = 10% + (10% - 11%) * 0.75 = 10% - 0.75% = 9.25%. My initial explanation contained a calculation error. The correct calculation shows that none of the provided options accurately reflects the correct equity yield based on the given formula and inputs. The correct equity yield calculation does not match any of the provided choices, indicating a mistake in my initial response.

Suppose a Property Has a Cap Rate of 10% and You