RE Finance Unit 15: Mathematics of RE Finance

Question 1

Add-On Rate

Answer 1

Method of computing interest whereby interest is charged on the entire principal amount for the specified term, regardless of any periodic repayments of principal that are made.

Question 2

Amortization

Answer 2

The systematic repayment of a loan through periodic installments of principal and interest over the entire term of the loan agreement.

Question 3

Annuity

Answer 3

A series of income payments or receipts over a period of years.

Question 4

Balloon Payment

Answer 4

The final payment of a partially amortized loan that is considerably larger than the required periodic payments.

Question 5

Breakeven Point

Answer 5

That point at which gross income equals fixed costs plus variable costs.

Question 6

Built-Up Rate

Answer 6

Proportional approach to deriving overall capitalization.

Question 7

Capitalization Rate

Answer 7

Method of estimating a property’s value by considering net annual income as a percentage of a reasonable rate of return on an investment. (Net income / Capitalization Rate = Property Value)

Question 8

Compound Interest

Answer 8

Interest paid on the original principal and also on the accrued interest.

Question 9

Discount

Answer 9

Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.

Question 10

Discounted Cash Flow

Answer 10

Present value of income stream.

Question 11

Effective Rate

Answer 11

Actual interest rate paid on a loan regardless of the rate stipulated in the contract.

Question 12

Fixed Costs

Answer 12

Regularly impacting operating expenses such as taxes, insurance, and maintenance.

Question 13

Future Worth

Answer 13

The compounding increase in the value of money over time.

Question 14

Interest

Answer 14

Money paid for the use of money.

Question 15

Interest Factor (IF)

Answer 15

From a table, the numbers derived from formulas designed to indicate the present or future worth of money.

Question 16

Interest Only

Answer 16

A term loan arrangement calling for payments of interest only, not including any amount for principal.

Question 17

Loan Constant

Answer 17

Factor or multiplier used for the rapid computation of the annual payment needed to amortize a loan.

Question 18

Nominal Rate

Answer 18

The interest rate stipulated in a contract.

Question 19

Opportunity Cost

Answer 19

Earnings available on alternative investments.

Question 20

Points

Answer 20

Amount of discount on a mortgage loan stated as a percentage; one point equals 1% of the face amount of the loan; a discount of one point raises the net yield on the loan by one-eighth of 1%

Question 21

Premium

Answer 21

A fee paid for an insurance policy.

Question 22

Present Worth

Answer 22

The discounted present-day value of money to be received in the future.

Question 23

Return on Investment

Answer 23

Net annual income divided by cash investment equals a percentage return on the investment.

Question 24

Simple Interest

Answer 24

Interest that is charged only on the principal amount outstanding.

Question 25

Stop Date

Answer 25

Date on a term loan when the balloon payment is due.

Question 26

Term Loan

Answer 26

Non-amortized loan for a specified period, at the end of which the entire principal amount is due.

Question 27

Variable Cost

Answer 27

Operating expenses that fluctuate with occupancy, such as utilities and maintenance costs.

Question 28

Weighted Rate

Answer 28

Proportional approach to deriving overall capitalization.