What is the exam-ready answer?
| Roadmap post | 238 of 500 |
|---|---|
| Official syllabus topic | XI.B.2 General Concepts: Rate of return and capitalization rate |
| Official PSI area | Real Estate Calculations |
| Published weight | 7% of the 100-question national portion |
| Source edition | PSI Georgia Candidate Information Bulletin dated July 1, 2026 |
| Content checked through | August 2, 2026 |
The Rule
PSI publishes a weight for the complete official area, not a guaranteed count for this individual calculation. Follow the stated facts, units, time basis, and rounding instruction.
Formula and variables
| Symbol or term | Meaning |
|---|---|
| I | Annual net operating income before debt service and income taxes |
| R | Capitalization rate expressed as a decimal for calculation |
| V | Property value or price |
Step-by-step method
- Identify which IRV term is missing: income, rate, or value.
- Confirm that income is annual NOI rather than gross rent or cash flow after debt service.
- Convert the cap rate from a percentage to a decimal.
- Divide NOI by value for rate, divide NOI by rate for value, or multiply value by rate for NOI.
- Check the inverse relationship: with the same NOI, a higher cap rate produces a lower value.
Georgia-specific distinction
Worked examples
Example 1: Find value
Scenario. An income property produces $54,000 annual NOI and the market cap rate is 7.5%.
- Convert 7.5% to 0.075.
- Value = $54,000 / 0.075 = $720,000.
Answer. The indicated value is $720,000.
Reasonableness check. $720,000 x 7.5% returns the $54,000 NOI.
Example 2: Find cap rate
Scenario. A property sells for $625,000 and produces $43,750 annual NOI.
- Rate = $43,750 / $625,000 = 0.07.
- Convert 0.07 to 7%.
Answer. The capitalization rate is 7%.
Reasonableness check. The annual NOI is seven cents for each dollar of value before financing.
Common exam traps
- Using gross rent instead of NOI
- Dividing value by NOI and reporting the reciprocal
- Using 7.5 instead of 0.075 in the value calculation
- Subtracting mortgage payments when calculating NOI
Original practice questions with detailed explanations
These original instructional questions map to the July 1, 2026 PSI outline. They are not copied from PSI or any live examination. Write the setup before opening the explanation.
Question 1A property has $36,000 NOI and a value of $450,000. What is the cap rate?
- A. 6%
- B. 8%
- C. 12.5%
- D. 80%
Show answer and explanation →
Answer: B. 8%
$36,000 / $450,000 = 0.08, or 8%.
Question 2NOI is $62,400 and the market cap rate is 8%. What value is indicated?
- A. $499,200
- B. $624,000
- C. $780,000
- D. $7,800,000
Show answer and explanation →
Answer: C. $780,000
$62,400 / 0.08 = $780,000.
Question 3If NOI stays fixed and the market cap rate rises, indicated value generally does what?
- A. Rises
- B. Falls
- C. Stays fixed
- D. Becomes gross rent
Show answer and explanation →
Answer: B. Falls
Value equals NOI divided by rate. A larger denominator produces a lower value.
Mastery tracking
Mark this calculation mastered only when every statement is true.
- I can write all three IRV forms without a diagram.
- I convert the percentage rate to a decimal.
- I distinguish NOI from gross income and cash flow.
- I exclude debt service from NOI.
- I use the inverse rate-value relationship to test reasonableness.
Recommended next lesson
Continue with Net Operating Income. Master the income figure that feeds the cap-rate formula.
Return to the complete calculation hub, formula sheet, or mixed math drill.