Lesson 8

Question 1

Band of Investment (BOI) Formula

Answer 1

Blended proportion of the mortgage constant and the equity capitalization rate R0 = (M x Rm) + E x Re)
M = initial permanent long-term debt-to-price ratio
E = initial equity down payment-to-price ratio, ie M + E = 100%
Rm = mortgage constant, or annual payment to amortize $1
Re = equity cap rate, or first-year cash flow return required by typical investor on the initial equity investment