REAL 4000 Test 2 Dietz Exam Questions
With Correct Answers
Value of a property or mortgage thus depends on: - answer✔✔1. Magnitude
2. Timing
3. Riskiness
of expected cash flows
TVM timelines always starts with - answer✔✔- "Time Zero"
Mortgage (debt) timelines normally - answer✔✔30 years
Most commercial property ownership - answer✔✔3-7 years
Amount at time "zero" - answer✔✔PV
A single cash flow at any future time point - answer✔✔FV
A repeating amount of cash inflow or outflow, flow normally begins at end of first period,
sometimes at time zero - answer✔✔PMT
This is the measure of time and the number of computations (compounds) - answer✔✔N
Interest Rate, required return, rate of return, opportunity cost, discount rate, IRR, etc. This is
some sort of rate (%) of return (yield) based on risk - answer✔✔I/Y
a fixed amount of money paid or received at the end of every period. Often another name for
fixed PMT. - answer✔✔Ordinary annuity
Any future cash inflow or outflow occurring only once (often another name for FV). -
answer✔✔Lump sum payment
(1 + r)^n - answer✔✔FV of Lump Sum Formula
(1 + r)^n - 1 / r - answer✔✔future value of an annuity formula
1 / (1 + r)^n - answer✔✔Present value of a lump sum
1-[1/(1 + r)^n] / r - answer✔✔Present value of annuity
when cashflow is uneven: - answer✔✔1. find the PVs of six different cash flows and sum the
results
2. Solve using the variable cash flow capacity of your calculator (CF and NPV buttons)
3. Use a spreadsheet
the lower the price of a property = - answer✔✔higher rate of return
the higher the price of a property = - answer✔✔the lower the rate of return
risk and return are ____________ related - answer✔✔directly
what property types are considered high risk? - answer✔✔land speculation
hospitality
restaurants
what property types are considered low risk? - answer✔✔AAA rated mortgage bonds
Net leased to AAA tenant
what property types are considered medium risk? - answer✔✔apartments
offices
high quality (safe real estate investments) - answer✔✔7-8% or less (investment grade of 3%)
development quality - answer✔✔30% of more
is a measure of change in an investors wealth - answer✔✔NPV
positive NPV - answer✔✔good investment
zero NPV - answer✔✔indifferent investment
negative NPV - answer✔✔bad investment
Five Vital Characteristics Related to Mortgages - answer✔✔1. The amount and frequency of
payments
2. The loan balance at any given time
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