A cash-equivalent price is $350,000 with annual gross income of $42,000. What annual price-to-gross-income multiplier results, to two decimals?
Correct Answer
B) 8.33
350000÷42000 = 8.33. Common errors: inverting the ratio (income ÷ price) gives 0.12; treating the annual income as monthly gives 100.00; misplacing the decimal in the income gives 83.33.
Why This Is the Correct Answer
Option B is correct because the multiplier is $350,000 ÷ $42,000 = 8.333, which rounds to 8.33. Both figures are annual, so the result is an annual gross income multiplier.
Why the Other Options Are Wrong
Option A: 0.12
Option A, 0.12, comes from inverting the ratio: $42,000 ÷ $350,000 = 0.12. That is income divided by price; the multiplier is $350,000 ÷ $42,000 = 8.33.
Option C: 83.33
Option C, 83.33, comes from misplacing the decimal in the income: $350,000 ÷ ($42,000 ÷ 10) = $350,000 ÷ $4,200 = 83.33. Using the stated $42,000 gives 8.33.
Option D: 100.00
Option D, 100.00, comes from treating the annual income as monthly: $350,000 ÷ ($42,000 ÷ 12) = $350,000 ÷ $3,500 = 100. The income is annual, so the multiplier is $350,000 ÷ $42,000 = 8.33.
Multiplier means price on top
To find how many times income the price is, divide price by income. A result below 1 means you divided the wrong way.
How to use: Use this when extracting or checking any price-to-income multiplier.
Exam Tip
Keep the income period as given; an annual price-to-income multiplier uses annual income without converting to monthly.
Common Mistakes to Avoid
- -Dividing income by price
- -Treating annual income as monthly
- -Rounding before completing the division
Concept Deep Dive
Analysis
This question tests extraction of an annual price-to-gross-income multiplier. The multiplier is the cash-equivalent price divided by annual gross income, rounded to two decimals. Distractors come from inverting the ratio or misreading the income's amount or period.
Background Knowledge
A gross income multiplier expresses sale price as a multiple of gross income. It is applied to the same level and period of income from which it was derived. Multipliers from comparable sales help estimate value for properties with similar income and expense patterns.
Real-World Application
An appraiser verifies a duplex sale at $350,000 with $42,000 of annual gross rent. She records an annual GIM of 8.33 and compares it with other duplex sales in the neighborhood.
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