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Not So Urgent, But Please Help

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jurelovsin

Freshman Member
Joined
May 25, 2003
Hello

I study the book Akerson, Capitalization Theory and Techniques, which all of you know. I have problem to solve Exercise 3, Lesson 12 (Page 108) so I please you to give me the way to the solution. My answer 0,14 - 0,10 x 0,0517 = 13,48% is not the same as the answer in the book (13,68%). Where have I mistaken???

Best wishes to Forum from Slovenia, Europe, where my home is.
Jure :redface:
 

David S. Roberson

Senior Member
Gold Supporting Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
Welcome, Jure!

Sorry though, I'm not familiar with that particular book. Maybe someone else here will help. Good Luck!
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
We often use Kinnards Income Property Appraisal here. Why not post the problem in full? Then we can help.

Roger
 

jurelovsin

Freshman Member
Joined
May 25, 2003
Hello

I am surprised that nobody knows Akerson`s book, which is recommended by AI of Chicago. OK, never mind. The problem description:
75% loan, 10% interest, 25 years (monthly payments)
14% equity yield
investment to be held 10 years
expected depreciation during 10 years 10% of original value
Question: What is the equity dividend rate???

Please not only answer, but all the way to it.

Thank you in advance.
Jure from East side of the Atlantic
 

Curtis West

Sophomore Member
Joined
Jun 7, 2002
Professional Status
Certified General Appraiser
State
North Carolina
In this example the value of the total property decreases 10%, but the value of the equity increases by about 6.2% (due to mortgage amortization over the 10 year holding period). At the end of the 10 year holding period the mortgage balance is about 83.8% of the original balance, and the equity has increased from 0% to about 16.2%.

Apply the sinking fund factor to the total change in equity (not property) value to calculate the difference between the equity yield rate and the equity dividend rate.

Hope this helps
 

jurelovsin

Freshman Member
Joined
May 25, 2003
Thank you, Mr. West

If I understand properly, the equation for Equity dividend rate is:

= Equity yield rate - ((percent paid off balance - depreciation) x sinking fund factor)

If there is no mortgage, then

= Equity yield rate + (depreciation x sinking fund factor)

I am right?

Jure Lovsin
 

Curtis West

Sophomore Member
Joined
Jun 7, 2002
Professional Status
Certified General Appraiser
State
North Carolina
Sorry to take so long to answer.

The equation should be:

equity dividend rate = equity yield rate - (cange in (equity) value X sinking fund factor).
 
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