Which part of characteristic 1 is not correct? Thanks.
Characteristic 1: DDM reflects all earned income, whereas NAVPS only reflects income that is retained by the property management company.
Characteristic 2: NAVPS is based solely on historical revenue and does not reflect upcoming income growth expectations.
Characteristic 3: DDM uses discount rates consistent with the required rate of return for public equity investment.
59. Which of Dwelley's characteristics of the DDM and NAVPS methods is most likely correct?
A. Characteristic 1
B. Characteristic 3
C. Characteristic 2
Answer = B
Characteristic 3 is correct because the discount rate (cap rate) used in NAV calculation is based on private valuation of comparable properties. The discount rate used in DDM calculation is based on the discount rate for a public equity investment.
CFA Level II
"Publicly Traded Real Estate