REE 4204 Exam 1 Questions With Answers

REE 4204 Exam 1 Questions With Answers finance - ANSWER The study of the process, institutions, markets, and instruments used to transfer money and credit between individuals, businesses, and governments applied economics - ANSWER the study of the allocation of resources for the purpose of producing goods and services for various members of society finance is the study of - ANSWER how the flow of money and credit facilitates that production and allocation finance emphasizes.. - ANSWER -time value of money (TVM) and implications of interest rates on TVM and financing decisions: -Focuses on cash flows, not profits -makes extensive use of the concept of risk risk - ANSWER the possibility that the actual result will differ from the expected outcome. real estate finance - ANSWER study of the institutions, markets, and instruments used to transfer money and credit for the purpose of developing or acquiring real property real property - ANSWER the rights, powers, and privileges associated with the use of real estate real estate - ANSWER land and all fixed and immovable improvements on it real estate finance includes the study of... - ANSWER Residential and commercial properties Terms of residential and property leases Appraisal of residential and commercial properties Financing of residential and commercial real estate Valuation of mortgages Real estate taxation issues Primary and secondary mortgage markets Securitization of mortgages financial instruments - ANSWER used to transfer money and credit for the purpose of developing and acquiring real property financial instrument instituions - ANSWER that create and purchase those instruments and the markets within which they are transferred constitute the environment of real estate finance. savings-investment cycle - ANSWER An identity, whereby the amount of savings equals the total amount invested 3 groups of savings - ANSWER by individuals, businesses, and the government saving-investment cycle considers investments to be - ANSWER new plant construction, equipment and real property financial marketplace - ANSWER the system whereby savings are transferred from what are termed surplus income units to what are termed deficit income units flow of funds in savings-investment cycle - ANSWER left- positive, surplus units (banks, investment companies right- negative/ deficit (federal gov) Financial intermediaries - ANSWER financial institutions that channel funds from the surplus income units to the deficit income units. Financial intermediaries examples - ANSWER -commerical banks -thrift institutions -investment companies -insurance companies -pension funds commerical banks - ANSWER accept demand and time deposits thrift insitutions - ANSWER S&L associations; mutual savings banks; credit unions investment companies - ANSWER pool the funds of savers and invest the funds in a portfolio of assets insurance companies - ANSWER 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 - ANSWER pool the contributions of employees and invest the funds similarly to insurance companies direct financing - ANSWER When the flow of funds takes place without the use of intermediaries direct financing example - ANSWER when a home seller grants a note to the home buyer primary mortgage market - ANSWER The market where mortgages are originated. -Originators either hold mortgages in portfolio or sell them into the secondary mortgage market secondary mortgage market - ANSWER agencies and firms purchase mortgages from other intermediaries or brokers that deal with surplus income units, using funds raised though sales of securities they create. major secondary market participants - ANSWER Major secondary market participants are the Federal National Mortgage Association (FNMA, or Fannie Mae), the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), the Government National Mortgage Association (GNMA, or Ginnie Mae), the Federal Home Loan Bank Board. A large and active secondary market makes - ANSWER securities more liquid. 2 types of financial markets - ANSWER -money market -capital market money market - ANSWER deal in short-term securities (maturities of 1 year or less). financial market - ANSWER deal in long-term securities (over 1 year in maturity). most real estate takes place in - ANSWER the capital markets. mortgages - ANSWER long-term securities. Assume that only one type of credit instrument exists (e.g. a bond) - ANSWER -The bond is riskless -No inflation expectation -The price of the bond is inversely related to and determined by the market-required yield -Market value of the bonds can be defined in terms of either their price or their yield. Interest rate on an instrument - ANSWER reflects general market rates and the risk of the specific instrument.