Having trouble with Going in cap rates, Discount rates and terminal growth rates

CFA Level II
#1

Hello everyone

It has been a while i’ve not posted any question on this forum but i need help really badly now. I’m having troubles with different discount rates we have in valuations of real estates and cant figure out which one to use when. Specially the curriculum EOC have left me completely bamboozled (Reading 38) where they throw in so many rates. Can someone please give me some intuition on how to use them?

I know going in cap rate has growth built into it already and i also know that in order to find g we have to sub going in cap rate from dicount rate but the practice problems have had me in a fix really. Question 4 of the reading 38 EOC uses “discount rate” to discount the CFs and not going in cap rate but we discounted NOI by going in cap rate in Income approach.

HELPPP!!! … Can someone explain whats going on here?

#2

cap rate is only used for perpetuity, since it has growth built into it.

Discount rates for indivual periods, and for deriving the cap/terminal rate.

#3

oh wow … you’ve explained it in a sentence what schweser and irfanullah can not explain in their whole video lectures!!!