Which term describes the rate used to convert income into an estimate of capital value?

The term that describes the rate used to convert income into an estimate of capital value is known as the Capitalization Rate. This concept is crucial in real estate and investment analysis, as it allows investors and appraisers to determine the value of an income-producing property based on its expected income. The Capitalization Rate is essentially the expected rate of return from the property, calculated as the ratio of net operating income to current market value.

By employing the Capitalization Rate, one can assess how much an investor might pay for a property based on its income-generating potential. This method assists in valuing properties, allowing effective comparisons between different investment opportunities.

While the other terms like Discount Rate, Interest Rate, and Return Rate do relate to finance and investment in various contexts, they serve different functions. The Discount Rate is often used in present value calculations, the Interest Rate typically pertains to borrowing or lending, and the Return Rate is more broadly defined and not exclusively about property valuation. Understanding these distinctions reinforces why the Capitalization Rate is the appropriate choice for estimating capital value from income.