CFA CFA Level 1 CFA Level 1 Question of the Week – Alternative Investments

CFA Level 1 Question of the Week – Alternative Investments

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    • Matt_AnalystPrep
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      The cost approach is a real estate valuation method which estimates the replacement cost of a property by:

      • A. adding the cost of land and the cost of reconstruction at the current
        cost.
      • B. subtracting the current cost of reconstruction from the cost of the land.
      • C. discounting the net operating income at the cap rate.
    • Matt_AnalystPrep
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      The correct answer is A.

      The premise of the cost approach is that a potential user of real estate shouldn’t pay more for a property than it would cost to build an equivalent. The cost approach estimates the replacement cost of a building by adding the cost of the land to the current cost of reconstructing the building. 

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