Why risk free rate is subtracted from cost of equity for REIT valuation?

This one is repeated at two places in Schweser and there is no explanation for this. Please see the image of question and solution. In my understanding, growth rate (3%) here should be subtracted rather than risk free rate to get the terminal value.

Am I missing something here?



hey i had the same query the other day!! lol!! Hope to get a reply on this thread…

I think it should be the growth rate though!

It was a ‘mistake’ in the text.