California Real Estate Practice Exam

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Prepare for the California Real Estate Exam. Study with flashcards and multiple-choice questions, each question includes hints and explanations. Get ready to ace your exam!

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A property valued at $550,000 has a capitalization rate of 10%. The net income is $55,000. If the "cap rate" increased to 11%, what would be the adjusted value of the property?

$450,000
$480,000
$495,000
$500,000

The correct answer is: $450,000

The cap rate is calculated by dividing the net operating income (NOI) by the property value. The cap rate represents the potential return on investment for the property. In this scenario, the current cap rate is 10%, which means the property value is $550,000. If the cap rate increases to 11%, the new property value would be calculated by dividing the NOI of $55,000 by the new cap rate of 11%. This equals $500,000, which is a decrease in property value of $50,000. Therefore, option A is the correct answer. Options B, C, and D are incorrect because they do not accurately reflect the decrease in property value when the cap rate increases. Option B is only a decrease of $20,000, Option C is only a decrease of $5,000, and Option D suggests no decrease in property value. These options do not take into account the relationship between cap rate and property value.