The band of investment method computes a weighted average of which two rates?

The band of investment method specifically calculates a weighted average of the mortgage capitalization rate (Rm) and the equity capitalization rate (Re) to derive the overall capitalization rate of a property. This approach reflects the idea that real estate assets can be financed through different sources of capital: debt and equity.

In practice, the mortgage capitalization rate represents the return required by lenders on the debt portion, while the equity capitalization rate indicates the return expected by investors providing equity financing. By taking a weighted average of these two rates, the band of investment method helps appraisers account for the proportion of financing used for the property, thus providing a more accurate assessment of the property's income-generating potential.

Other options provided do not relate to the purpose or function of the band of investment method. The debt and tax rate option focuses on taxation rather than investment rates. The operating expense and gross income ratio option pertains to analyzing property performance metrics, while the equity return and management rate option does not specifically address the weighted averages relevant to investment calculations in appraisal contexts.