Chapter 9 - M/C and T/F Questions

1. The investment risk in real estate includes which of the following?

            a. Tax shelter
            b. Opportunity cost
            c. Cash flow
            d. All of the above

2. The rule of negative leverage is represented as
           
            a. Ro < Rm
            b. Ro > Rm
            c. Ro < Re
            d. Ro > Re

 3. What real estate investment benefits are considered in the valuation method?

            a. Tax shelter
            b. Appreciation
            c. Mortgage reduction
            d. All of the above

 4. Cash flow before taxes should be considered when determining viability of an investment.
            a. True
            b. False

5. Reserve accounts are used for periodic repairs and replacement expenses but need to be accounted for on the cash flow statement such as a savings account.

            a. True
            b. False

 6. Typically a market with a lower cap rate indicates that investors are paying higher prices.

            a. True
            b. False

  Answers: 1) b 2) a, 3) d, 4) True, 5) True, 6). True