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Question:

Which of the following statement regarding capitalization rates is least correct?

A Decreasing the risk of loss increases the cap rate.
Explaination

The capitalization rate (cap rate) is the annual rate of return produced by the operations of an income property. The cap rate is calculated by dividing the net operating income (NOI) by the price asked or offered for income property. Thus, the value moves in the opposite direction of the rate, and a higher risk is rewarded by a higher return.