Question 1

A call option is an option contract that gives the option holder the right to sell the optioned asset from the option writer at the striking price.

Accepted Answer

A) True 
 B)False

Question 2

What is the price-to-rent ratio for a condominium that rents for $1,200 per month and has a market value of $279,000?

Accepted Answer

A) 3.9 
B) 7.8 
C) 232.5 
D) 19.4

Question 3

A speculator is someone who buys an asset in the hope that someone else will pay more for it in the near future.

Accepted Answer

A) True 
 B)False

Question 4

Paul's marginal tax bracket is 28 percent.He has taxable income of $5,000 on his real estate investment.His tax liability on this income is

Accepted Answer

A) $0. 
B) $1,400. 
C) $1,500. 
D) $3,200.

Question 5

Capital gains on real estate are realized through

Accepted Answer

A) price appreciation. 
B) price depreciation. 
C) depreciation deduction. 
D) liquidity.

Question 6

Misty and Jason rented out their lake house for five days and were paid $800.Assuming this is their only rental income and they are in the 28 percent marginal tax bracket,their tax liability on this $800 would be

Accepted Answer

A) $576. 
B) $448. 
C) $224. 
D) $0.

Question 7

The average rate of return for all investors in futures is zero.

Accepted Answer

A) True 
 B)False

Question 8

Beneficial tax treatments for real estate cash flow include all of the following except

Accepted Answer

A) repairs. 
B) interest deductions. 
C) tax-free exchanges. 
D) depreciation deductions.

Question 9

Most options expire without being exercised.

Accepted Answer

A) True 
 B)False

Question 10

During times of high mortgage interest rates,real estate investors can expect a positive cash flow.

Accepted Answer

A) True 
 B)False

Question 11

Under the depreciation provisions applying to real estate,which of the following statements is false?

Accepted Answer

A) The value of the land and property is added together and divided by the depreciation factor. 
B) The guidelines for residential and commercial properties are 27.5 and 39 years, respectively. 
C) Depreciation can be deducted from the cost of the asset over the asset's estimated life. 
D) The IRS allows the investor to deduct depreciation from income earned.

Question 12

____ give the holder the right to sell shares of the optioned asset at a given price.

Accepted Answer

A) Rights 
B) Warrants 
C) Call options 
D) Put options

Question 13

The loan-to-value ratio measures the amount of leverage in a real estate investment project.

Accepted Answer

A) True 
 B)False

Question 14

Buying and selling options are techniques used by both conservative and aggressive investors.

Accepted Answer

A) True 
 B)False

Question 15

Painting a rental property is an example of a repair.

Accepted Answer

A) True 
 B)False

Question 16

A primary advantage of real estate investing is liquidity.

Accepted Answer

A) True 
 B)False

Question 17

Suni invested $100,000 in rental property for which she received $10,000 rent.She will have to pay taxes on the full $10,000 rental income.

Accepted Answer

A) True 
 B)False

Question 18

The wealth of all investors remaining the same is known as a

Accepted Answer

A) zero-sum game. 
B) break-even price. 
C) leverage contract. 
D) timeshare.

Question 19

The higher the loan-to-value ratio,the greater the amount of leverage in an investment project.

Accepted Answer

A) True 
 B)False

Question 20

Rapid and unsustainable increases in home prices followed by sharp declines in values is referred to as

Accepted Answer

A) real estate (or housing) bubble. 
B) inflation 
C) leverage. 
D) deflation.

Exam 16: Real Estate and High-Risk Investments

A call option is an option contract that gives the option holder the right to sell the optioned asset from the option writer at the striking price.

What is the price-to-rent ratio for a condominium that rents for $1,200 per month and has a market value of $279,000?

A speculator is someone who buys an asset in the hope that someone else will pay more for it in the near future.

Paul's marginal tax bracket is 28 percent.He has taxable income of $5,000 on his real estate investment.His tax liability on this income is

Capital gains on real estate are realized through

Misty and Jason rented out their lake house for five days and were paid $800.Assuming this is their only rental income and they are in the 28 percent marginal tax bracket,their tax liability on this $800 would be

The average rate of return for all investors in futures is zero.

Beneficial tax treatments for real estate cash flow include all of the following except

Most options expire without being exercised.

During times of high mortgage interest rates,real estate investors can expect a positive cash flow.

Under the depreciation provisions applying to real estate,which of the following statements is false?

____ give the holder the right to sell shares of the optioned asset at a given price.

The loan-to-value ratio measures the amount of leverage in a real estate investment project.

Buying and selling options are techniques used by both conservative and aggressive investors.

Painting a rental property is an example of a repair.

A primary advantage of real estate investing is liquidity.

Suni invested $100,000 in rental property for which she received $10,000 rent.She will have to pay taxes on the full $10,000 rental income.

The wealth of all investors remaining the same is known as a

The higher the loan-to-value ratio,the greater the amount of leverage in an investment project.

Rapid and unsustainable increases in home prices followed by sharp declines in values is referred to as