REE 4204 Sirmans TEST QUESTIONS AND ANSWERS

REE 4204 Sirmans TEST QUESTIONS AND ANSWERS Finance - ANSWER -study of the process, institutions, markets and instruments used to transfer money and credit between individuals, business, and gov Applied economics - ANSWER -study of the allocation of resources for the purpose of producing goods and services for various members of society -considers time value of money and implications of the interest rates -focused on cash flows not profits -makes extensive use of the concept of risk Real estate finance - ANSWER -study of institutions, markets, and instruments used to transfer money and credit for the purpose of developing or acquiring real property Real property - ANSWER -rights, powers, and privileges associated with the use of real estate Real estate - ANSWER land and all the fixed immovable improvements on it Environment of real estate - ANSWER the institutions that create and purchase real property and the markets within which they are transferred Financial intermediaries - ANSWER -the financial institutions that channel funds from the surplus income units to the deficit income units -commercial banks -Thrift institutions- S&L associations and mutual savings banks -investment companies-pool the funds of savers and invest the funds in a portfolio of assets - Insurance companies- receive periodic or lump sum payments from individuals or organizations in return for a promise to make future payments if certain events occur -pension funds Direct financing - ANSWER - when the flow of funds takes the place without the use of intermediaries Primary mortgage market - ANSWER -market where mortgages are originated Secondary mortgage market - ANSWER -fannie Mae, freddie Mac, ginnie mae -agencies and firms that purchase mortgages form other intermediaries or brokers that deal with surplus income units, using funds raised through the sales of securities they create -issue mortgages using mortgage pool s at collateral -a large and active secondary market makes assets more liqid Financial markets are divided into two categories - ANSWER 1. Money markets- short m term securities of 1 yr to less 2. Capital markets-long term securities more than 1 yr to maturity (real estate financing takes place here) General level of real estates with bonds - ANSWER -no risk in bonds -the price of a bond is inversely related to and determined by the market required yield Monetary theory of inflation - ANSWER -the greater the rate of growth in money the greater the rate of inflation Fisher equation - ANSWER -inflation rate plays an important role in the market rate -I(nominal rate observed in the market)=r(real rate lender wants to receive)+p(expected inflation over the maturity) Risks in Real Estate - ANSWER -default risk-risk that borrower will not repay the mortgage per the contract -call ability risk-borrower might pay before maturity -Maturity risk-the longer the maturity of an asset the greater the given change in interest rates -marketability risk-risk that the asset won't trade in a large organized market -inflation risk-risk in loss of purchasing power -Interest rate risk- risk of loss due to change in market interest rates Municipal bonds - ANSWER -least amount of risk involved -government treasury bonds -interest earned from these bonds is tax free, but have lower returns because they are tax free Yield curve - ANSWER -relates maturity and yield (return) at the same point in time -upward sloping-yield on long-term assets is greater than short term assets -Downward sloping- happens when interest rates are really high