This is a yield capitalization method that provides a solution that is formulaic for developing a capitalizaton rate for various combinations of equity yields and mortgage terms. The formula is applicable only to properties with stable income streams and properties with income streams which are generally expected to change according to the J or K factor pattern. The formula is

R0 = [Ye - M (Ye + P1/Sn] - Rm) - Δ0 1/Sn] divided by (1 + Δi J ) 

where

Ro = Overall Capitalizaton Rate

Ye = Equity Yield Rate

J = J Factor

M = Loan to Value Ratio

P = Percentage of Loan Paid off

1/Sn = Sinking Fund Factor at the Equity Yield Rate

Rm = Mortgage Capitalization rate

Δo = Total Ratio Chabge in income