CFA Level I · CFA Level I Exam · Natural Resources
Which of the following is the most likely source of return for an investor holding farmland that is leased to a tenant farmer under a cash rent arrangement?
The most likely sources of return are rental income and land value appreciation. With a cash rent lease, the tenant farmer bears crop price, yield and operating cost risk, so the owner earns the fixed rent plus any change in the value of the land.
- ARental income and land value appreciationCorrect
- BCrop sale proceeds net of all operating costs
- CBiological growth of standing timber
Explanation
Under cash leasing the owner receives rent and benefits from changes in land value. Crop revenue and operating costs belong mainly to the tenant, so the owner is less exposed to crop price and yield risk. Timber growth applies to timberland.
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