Tuesday, September 10, 2013
Chapter 5 Review Questions
1) The argument for using time value of money is that the usefulness for ant good is in terms of money; more is better than less, and sooner is better than later.
2) Capitalism is the power and the right of money to earn money.
3) The difference between compounding and discounting is that compounding determines the present value and discounting determines the future value.
4) The terms “return on” and “return of” differ in that “return on” is the portion of an investment cash inflow designated as interest earned on invested capital and “return of” is the portion of an investment cash inflow designated as repayment of invested capital.
5) A specific type of income stream characterized by equal payments over a period of time is called a lump sum.
6) The systematic reduction of debt through a series of scheduled principal repayments that lead eventually to the complete extinction of the loan.
c. Present value
d. Cash flow
7) The discounted value of an income-producing asset considering both cash inflows to the asset owner and cash outflows from the asset owner is ________.
a. Internal rate of return
b. Net present value
c. Sales cost
d. Net proceeds from sale
8) Which of the following is an important ratio used in real estate:
a. Value ratio
b. Return measures
c. Leverage risk measures
d. All of the above
Answers: 1)T 2)T 3)F 4)T 5)F 6)A 7)B 8)D