Wednesday, March 14, 2012

Chapter 9 Investing Activity

by: Mario Jauregui
True or False
Once you have commit funds to an investment, your opportunity cost is the highest relative return of other investment alternatives.


True or False
The liquidity of real estate as an investment is not an issue at all for potential investors.

F: Real estate is not easily liquefied when desired

Multiple Choice
Which of the following are potential risks that a real estate investor might face when looking into investing their money into a new development?
(A) Business or Market Risk
(B) Opportunity Cost
(C) Management Risk
(D) Inflation Risk
(E) All of the above


Multiple Choice
A ___________________ is used to account for the periodic replacement of the improvement’s short-lived components, for example, the roof, HVAC system, appliances, paint, and carpeting.
(A) Tax Shelter
(B) Cash Flow
(C) Reserve Account
(D) Replacement Cash Flow
(E) Non of the above

C: Replacements for reserve or replacement reserves

True or False
A tax shelter is a reduction, usually mortgage interest and tax depreciation for real estate investments, in taxable investment income.


True or False
Economic depreciation is the annual allowance, set by Congress and collected and enforced by the IRS, used to recover or recapture capital investment in long-term assets.

F: Tax, is the term used for the annual allowance set by Congress and collected by the IRS.

Multiple Choice
When you participate in different forms of financial investments you are using ________________.
(A) Inflation
(B) Diversification
(C) Spread
(D) Leverage


True or False
If Ro (return generated by the asset) is greater then Rm (the cost of borrowing), then Re (rate of return to the equity investor) is greater than Ro (return generated by the asset.

T: This means that the investor has positive leverage over the asset   

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