Groundlearn / Glossary / Capitalisation rate
Capitalisation rate
Also called cap rate. A CFA term, defined in plain English with the distinction examiners test.
What it means
Net operating income divided by property value — a property’s unlevered income yield.
Value = NOI / cap rate
The exam angle
Functions like the inverse of a P/E ratio. A falling cap rate means prices rising faster than income.
Where it appears in the syllabus
- Alternative InvestmentsCFA Level I · exam weight 6–9% · Private capital, real estate, natural resources, hedge funds, digital assets.
Related terms
- Capital callThe general partner’s demand that limited partners transfer part of their committed capital.
- Carried interestThe general partner’s share of a private fund’s profits, typically around 20%.
- Contango and backwardationContango is a futures price above the spot price; backwardation is a futures price below it.
- Distribution waterfallThe agreed order in which a private fund’s proceeds are shared between limited and general partners.
- General partnerThe manager of a private fund, responsible for investment decisions and bearing unlimited liability for the partnership.
- Hedge fundA privately offered pooled vehicle with broad freedom over strategy, leverage and short selling.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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