Define "capitalization rate" in real estate.

Capitalization rate is a key concept in real estate that helps investors assess the profitability and value of a property. Specifically, it is defined as the rate used to convert income into value, which is calculated by dividing the net operating income (NOI) of a property by its current market value. This ratio allows investors to evaluate how much income a property can generate relative to its purchase price or value.

Using the capitalization rate, investors can compare the income-producing potential of different investment opportunities, helping them make informed decisions. A higher capitalization rate may indicate a higher risk or a lower price for the property, while a lower capitalization rate might suggest a lower risk or a more stable investment.

The other options do not accurately reflect the definition of capitalization rate. For instance, the calculation associated with determining the interest rate on a mortgage differs from how capitalization rate is applied. Similarly, calculating property taxes and managing the ratio of expenses to income do not directly relate to the capitalization rate's primary function in real estate valuation. Thus, the definition provided in the correct choice captures the essential role of capitalization rate in assessing property value through income generation.