REAL 4000 DIETZ EXAM 2 |134
QUESTIONS AND ANSWERS
Value of property or mortgage depends on - -Magnitude of cash flows,
timing of expected cash flows, riskiness of expected cash flows
- risk - -the possibility that the actual outcome will vary from what was
expected when the asset was purchased
- commercial real estate cycle - -A lot of money is put down onto
commercial real estate, they collect money from rent, and eventually sell
and buy new property
- A TVM Timeline always starts with - -time zero
- Most commercial property ownership (equity) lines normally run - -3-7
years
- Mortgage (debt) timelines can normally run up to - -30 years
- present value (pv) - -an amount at time "zero"
- future value (fv) - -a single cash flow at any future point
- payment (pmt) - -a repeating amount of cash inflow or outflow, flow
normally begins at end of first period, sometimes at time zero
- number of periods (n) - -the measure of time and the number of
computations (compounds)
- interest/yield interest rate (I/Y) - -required return, rate of return,
opportunity cost, discount rate, IRR, etc. this is some sort of rate (%) of
return (yield) based on risk
- ordinary annuity - -a fixed amount of money paid or received at the end of
every period, often another name for fixed payment
- lump sum payment - -Any future cash inflow or outflow occurring only
once (often another name for FV).
- often interest rates or return are quoted as - -annual rates
- valuation requires the use of 4 tvm operations - -compounding operations
-fv of a lump sum
, -fv of an annuity
discounting operations
-pv of a lump sum
-pv of an annuity
- the most common residential real estate loans in today's market will be - -
fixed rate
- adjustable rate mortgages are more common when - -rates in the market
are not stable as they protect the lender from interest rate risk (the risk that
interest rates rise in their case) this allows the borrower to secure a lower
rate for the short term
- two elements of a mortgage loan - -note and mortgage
- the note - -exact terms of the financial obligation
- the mortgage (or deed of trust) - -pledges the property as security for the
note
- The Note: Loan Payment Options - -1. fully amortized
2. partially amortized
3. interest only non-amortizing; sometimes called bullet loan
4. negative amortization (principal rising not falling)
- most residential consumer real estate loans are - -fully amortized
- partially amortized loan - --most commercial real estate loans
-term for amortization
-term to maturity (paid off before amortization term)
- interest only non amortizing loan - --sometimes called a bullet loan
-balloon payment at end unless converting to amortized loan
-mostly commercial, but sometimes residential loans
-dollar wise these loan payments are smaller
- Negative Amortization Loan - --purposeful in reverse mortgages
- principal reduction formula - -interest charge - payment
- Modern statutory case - -Right of prepayment unless explicitly prohibited
- Loans with full right of prepayment - --All "conforming" and FHA/VA loans
-Home equity credit lines
-Most some "non-conforming loans"
QUESTIONS AND ANSWERS
Value of property or mortgage depends on - -Magnitude of cash flows,
timing of expected cash flows, riskiness of expected cash flows
- risk - -the possibility that the actual outcome will vary from what was
expected when the asset was purchased
- commercial real estate cycle - -A lot of money is put down onto
commercial real estate, they collect money from rent, and eventually sell
and buy new property
- A TVM Timeline always starts with - -time zero
- Most commercial property ownership (equity) lines normally run - -3-7
years
- Mortgage (debt) timelines can normally run up to - -30 years
- present value (pv) - -an amount at time "zero"
- future value (fv) - -a single cash flow at any future point
- payment (pmt) - -a repeating amount of cash inflow or outflow, flow
normally begins at end of first period, sometimes at time zero
- number of periods (n) - -the measure of time and the number of
computations (compounds)
- interest/yield interest rate (I/Y) - -required return, rate of return,
opportunity cost, discount rate, IRR, etc. this is some sort of rate (%) of
return (yield) based on risk
- ordinary annuity - -a fixed amount of money paid or received at the end of
every period, often another name for fixed payment
- lump sum payment - -Any future cash inflow or outflow occurring only
once (often another name for FV).
- often interest rates or return are quoted as - -annual rates
- valuation requires the use of 4 tvm operations - -compounding operations
-fv of a lump sum
, -fv of an annuity
discounting operations
-pv of a lump sum
-pv of an annuity
- the most common residential real estate loans in today's market will be - -
fixed rate
- adjustable rate mortgages are more common when - -rates in the market
are not stable as they protect the lender from interest rate risk (the risk that
interest rates rise in their case) this allows the borrower to secure a lower
rate for the short term
- two elements of a mortgage loan - -note and mortgage
- the note - -exact terms of the financial obligation
- the mortgage (or deed of trust) - -pledges the property as security for the
note
- The Note: Loan Payment Options - -1. fully amortized
2. partially amortized
3. interest only non-amortizing; sometimes called bullet loan
4. negative amortization (principal rising not falling)
- most residential consumer real estate loans are - -fully amortized
- partially amortized loan - --most commercial real estate loans
-term for amortization
-term to maturity (paid off before amortization term)
- interest only non amortizing loan - --sometimes called a bullet loan
-balloon payment at end unless converting to amortized loan
-mostly commercial, but sometimes residential loans
-dollar wise these loan payments are smaller
- Negative Amortization Loan - --purposeful in reverse mortgages
- principal reduction formula - -interest charge - payment
- Modern statutory case - -Right of prepayment unless explicitly prohibited
- Loans with full right of prepayment - --All "conforming" and FHA/VA loans
-Home equity credit lines
-Most some "non-conforming loans"
