This is the rate that is utilized to convert future cash flows into present value in a discounted cash flow (DCF) model. It is composed of four factors: the long-term and risk-free rate; the risk premium associated with unexpected outcomes in the property’s net operating income (NOI); the risk premium associated with the property’s illiquidity relative to a 10-year treasury bond; and the expected economy-wide inflation.
Discount Rate
This is the rate that is utilized to convert future cash flows into present value in a discounted cash flow (DCF) model. It is composed of four factors: the long-term and risk-free rate; the risk premium associated with unexpected outcomes in the property’s net operating income (NOI); the risk premium associated with the property’s illiquidity relative to a 10-year treasury bond; and the expected economy-wide inflation.
