Module 18 understanding cash flow Flashcards
______interest is paid only on the original principal, not on any interest accrued.
Simple
_____ interest is used in the financial world, and it is what investors use to analyze their return on real estate.
Compound interest
Interest earned on the original investment amount and on previously earned interest.
Compound interest
The phrase, “A bird in the hand is worth two in the bush,’ is axiomatic of
the relationship between time and money.
Money to be received at some point in the future is worth less than money available now. This is called
discounting
The rate applied to the investment from period to period.
Periodic rate
The period cate multiplied by the number of periods in a year.
Annual nominal rate
The rate that includes the effect of compounding
Annual effective rate
The capitalization rate is equivalent to
the periodic (monthly, quarterly, annually) mortgage constant times the number of payments per year on a given loan on the day the loan is initiated.
To calculate the mortgage constant,(or mortgage capitalization rate) ____
the annual debt service (that is the principal and interest for one year) is divided by the mortgage amount.
What does RPN represent?
Reverse Polish notation
The concept underlying compound interest that holds that $1 (or another unit of currency) received in the future due to opportunity cost, inflation, and the certainty of payment.
Time value of money
How to figure the effective rate?
divide the interest by the principal amount.
A client is discussing with an appraiser the annual debt service she has on a commercial property owned by her investment company. What does the client mean by the term “ annual debt service”?
the annual amount of principal and interest paid on debt
