Capitalisation rates use the 10 year bond rate as a base. With 10 year bond rates at 1.5%, a 5% capitalisation rate has a 3.5% allowance for risk.
What allowance for risk do you think would be appropriate?
My own view is that 3.5% allowance for risk is fine, but 30 year bond rates should be used rather than 10 year rates.
End of the round, page-51
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