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Capitalization Rate

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A capitalization rate ("cap rate") is the interest rate at which earnings, dividends, or cash flows are converted into value or equity. (The root word of capitalize is capital, meaning equity interest.) A confusing aspect of the term "cap rate" is that some people use it to mean a whole number to multiply against the earnings measure, whereas others interpret it as an interest rate by which an earnings figure is divided.

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Copyright © 2011 Advameg, Inc.