ch. 17

Gold bullion's basic unit is:

1 kilogram of 0.995 fine gold

what are the two factors that cause almost all of the increase in dollar value?

Age & earning power of the time value of money

When buying gold coins, most brokers require a minimum order of Blank 1 of 2 coins and a commission of at least Blank 2 of 2%.

Blank 1: 10 or ten Blank 2: 2 or two

True or false: In comparison to other investments, such as stocks and bonds, an investment in real estate would be considered more liquid.

F (Reason: I would be more illiquid because it usually takes much longer to sell real estate.)

Hal Lindon has an equity investment in a pool of student loans that have been purchased by Sallie Mae. What type of investment is this?

Participation certificate

Which of the following are the two most important benefits of investing in limited partnerships?

Professional management Limited liability

Collectibles include which of the following?

Rare coins Works of art Stamps Antiques

Which of the following are examples of indirect real estate investments?

Real estate syndicate Investment in 2nd mortgages REITs

A participation certificate is an equity investment in a pool of mortgages or student loans that have been purchased by one of several government agencies.

T

Diversification in direct real estate investment is difficult because of the large size of most real estate projects.

T

Financial leverage enables you to acquire a more expensive property than you could on your own.

T

what is one of the most important decisions you can make regarding retirement?

The decision to begin saving and investing for retirement when you are young.

Which of the following are drawbacks to investing in precious metals?

Their eventual profit upon sale is subject to market forces. Precious metals do not bear current income.

True or false: Land and buildings that produce lease or rental income are called commercial properties.

True

A limited partner in a real estate venture is not liable for losses beyond their _____.

initial investment

More gold is in ____ than in the government reserves.

jewelry

A syndicate can be organized as a:

limited partnership trust corporation

In financing a foreclosure, one must be aware of all of the following EXCEPT

location of the property

An example of a direct real estate investment is a: limited partnership. single-family dwelling. real estate syndicate. real estate investment trust. mortgage pool.

single-family dwelling.

If you rent a vacation home out regularly, the size of your deductions is determined by whether you actively manage it and by the _____________.

size of your income

A limited partnership is formed by a general partner, who has ______ liability.

unlimited

According to a Federal Reserve study, the average homeowner's net worth is ______ times the net worth of the average renter.

46

Kara wants to purchase a home for $300,000. In order to purchase her home, she obtains a $275,000 loan that will be repaid in 30 years and has a fixed interest rate of 5%. Assume that during year 4, the interest she pays totals $11,940 and property taxes paid are $6,000. Kara is in the 30% tax bracket. What is the reduction in the amount of taxes that Kara must pay to the federal government?

$5,382 Since the interest paid and property taxes paid are both deductible, Kara can deduct $17,940 from her taxable income in year 4. Multiply the $17,940 by the 30% for the tax bracket, and the answer equals $5,382. Kara can reduce the taxes she pays to the federal government by $5,382.

Assume your home is assessed at $200,000. You have a $150,000 loan for 30 years at 6 percent. Your property tax rate is 1.5 percent of the assessed value. In year one, you would pay $9,000 in mortgage interest and $3,000 in property tax (1.5 percent on $200,000 assessed value). What is the total deduction you can take on your federal income tax return?

200,000*1.5% = 3,000 deductible Mortgage interest is deductible 9,000 + 3,000 = 12,000

Dave bought a rental property for $200,000 cash. One year later, he sold it for $240,000. What was the return percent on his $200,000 investment?

240,000 -200,000 = 40,000 40,000/200,000 = 20%

Lack of Blank 1 of 1 can be a disadvantage when investing in real estate.

Blank 1: diversification, diversity, or liquidity

When a trustee holds legal title to real estate on behalf of an investor, that investment is called a(n) Blank 1 of 1 investment.

Blank 1: indirect

Commercial property includes land and buildings that produce lease or Blank 1 of 1 income.

Blank 1: rental or rent

Commercial property includes land and buildings that produce lease or Blank 1 of 1 income. Listen to the complete question

Blank 1: rental or rent

A real estate Blank 1 of 1 is a temporary association of firms to perform a specific task that requires a large amount of capital.

Blank 1: syndicate or syndication

The increased ability to find obscure items on the Blank 1 of 1 has resulted in explosion of online collecting.

Blank 1: web, net, or internet

Which of the following factors cause gold prices to fall?

Easing of international tension Deflation Rising interest rates

True or false: Gold prices tend to be very stable over time.

False

True or false: In times of deflation and recession when the stock market is declining, real estate prices are usually rising.

False

True or false: Political instability and inflation usually cause the price of gold to decrease.

False

Which of the following factors cause gold prices to rise?

Inflation Political instability Fear of war

Return

Money that is made by investing

According to the National Association of Realtors, home values nearly double every _____ years.

10

Rani bought a rental property for $100,000 with no borrowed funds. Later, she sold the building for $120,000. What was her return on investment?

120,000 - 100,000 = 20,000 20,000 / 100,000 = 20%

Suppose you invested $20,000 of your own money and had a $80,000 mortgage with interest rate of 6.5 percent. After one year, you sell the property for $130,000. What is your gross profit?

130,000 - 100,000 = 30,000

A vacation home is deemed a second home so long as you rent it for no more than ________ per year.

14 days

Prema purchased 15 ounces of gold in 2005 for $422 per ounce in order to try to diversify her investment portfolio. She sold a third of her holdings in gold in 2009 at a price $944 per ounce. She sold the rest of her gold holdings in 2010 for $1,254 per ounce. What would her profit have been if she sold everything in 2010?

15*422 = 6,330 15*1,254 = 18,810 18,810 - 6,330 = 12,480

Prema purchased 15 ounces of gold in 2005 for $422 per ounce in order to try to diversify her investment portfolio. She sold a third of her holdings in gold in 2009 at a price $944 per ounce. She sold the rest of her gold holdings in 2010 for $1,254 per ounce. What would her profit have been if she sold all the gold holdings in 2009?

15*944 --> 14,160 -6,330 = 7,830 15*422 = 6,330

Assume your home is assessed at $200,000. You have a $150,000 loan for 30 years at 6 percent. Your property tax rate is 1.5 percent of the assessed value. In year one, you would pay $9,000 in mortgage interest and $3,000 in property tax (1.5 percent on $200,000 assessed value). Assuming you are in a 28 percent tax bracket, by what amount would you have lowered your federal income tax?

Taxable income = Adjusted gross income - deductions 12,000 deduction 12,000*.28 = 3,360 tax savings

True or false: With an indirect investment in real estate a trustee holds the legal title to the property.

True

All of the following are disadvantages to consider of reverse mortgages, except: Multiple Choice You get cash from the equity in your home. You will have a fewer amount of assets to leave to your heirs. Payments to the homeowner are often structured for a specific number or years or until both a husband and wife pass away. The bank or financial company owns your home. All of the above are disadvantages to consider of reverse mortgages.

You get cash from the equity in your home.

All of the following are advantages to consider when downsizing, except: Multiple Choice You can choose to move to a new location, like somewhere with a warmer climate or to be closer to family members. You may be able to improve cash flow. You will have to make adjustments if you move to a new neighborhood, city, state, or a foreign country. Your new home may be newer and require less maintenance. All of the above are advantages to consider when downsizing.

You will have to make adjustments if you move to a new neighborhood, city, state, or a foreign country.

Suppose Shaan invested just $10,000 of his own money and had a $90,000 mortgage with an interest rate of 8.5 percent. After three years, he sold the property for $120,000. (a) What is his gross profit? (b) What is his net profit or loss? (c) What is the rate of return on investment?

a. 120,000 - 100,000 = 20,000 b. 90,000*8.5%* 3yrs = 22,950 interest 20,000 - 22,950 = -2,950 c. net loss/orignial investment = -2,950/10,000 = -29.5%

Collecting for investment purposes is very similar to collecting as a hobby.

f

The disadvantage of buying collectible items on the internet is that buyers can't size up dealers _____.

face to face

You can buy bullion coins, commemorative coins, and ______ coins from gold dealers.

numismatic

Prema purchased 15 ounces of gold in 2005 for $422 per ounce in order to try to diversify her investment portfolio. She sold a third of her holdings in gold in 2009 at a price $944 per ounce. She sold the rest of her gold holdings in 2010 for $1,254 per ounce. What is Prema's profit in 2009 and 2010?

sold 5 oz * 944 --> 4,720* 2,110 = 2,610 5*422 = 2,110 10*1,254 --> 12,540 - 4,220 = 8,320 10*422 = 4,220

Passive loss is the total amount of losses from a passive activity minus the total income from the passive activity.

t

Gold Blank 1 of 1 includes gold bars and wafers.

Blank 1: bullion

True or false: A firm that pools investor funds and invests them in real estate is called a real estate consortium.

False

According to a __________ study, the average home owner's net worth is 46 times the net worth of the average renter.

Federal Reserve

Which of the following are noted as factors that appeal to investors when investing in precious stones?

Inflation hedge Great durability

Which one of the following is not a federal law requirement for REITs?

Invest at least 50% of total assets in real estate

What metals besides gold serve as a hedge against inflation?

Palladium Platinum Rhodium Silver

True or false: With a direct investment in real estate, the investor holds legal title to the property.

True

Which of the following best describe the contrast between the liability of a limited partner versus a general partner?

As a general partner, you bear all financial risks. As a limited partner, you cannot lose more than your initial investment.

A vacation home is deemed a second home and you can deduct the mortgage interest as long as you do not rent it for more than Blank 1 of 1 days per year.

Blank 1: 14 or fourteen

Blank 1 of 1 REITS own or operate income-producing real estate. This is found in the discussion of real estate investment trusts.

Blank 1: Equity

Investing in coins or stamps is known as investing in Blank 1 of 1.

Blank 1: collectibles

The disadvantages of investing in gold bullion include storage problems, and if the gold is not in the Blank 1 of 2 of a bank, it must be assayed before it can be Blank 2 of 2.

Blank 1: custody, possession, or care Blank 2: sold

The financing for a foreclosure may be more Blank 1 of 2 and Blank 2 of 2 than financing your primary residence.

Blank 1: difficult Blank 2: expensive or costly

When an investor holds legal title to a property, the investment is called a Blank 1 of 1 investment in real estate. This is a one word answer.

Blank 1: direct

Using borrowed funds to purchase real estate is called financial Blank 1 of 1.

Blank 1: leverage

Unlike stocks and bonds, real estate lacks large, Blank 1 of 1 and relatively efficient markets.

Blank 1: liquid

A real estate investment trust (REIT) is a firm that Blank 1 of 1 investment funds and invests them in real estate or to make construction or mortgage loans.

Blank 1: pools, combines, consolidates, aggregates, or collects

The impact of deflation and recession on real estate values depresses Blank 1 of 1.

Blank 1: prices, values, price, value, or investments

The risks of investing in diamonds includes liquidity and difficulty in judging Blank 1 of 1.

Blank 1: quality, grade, value, or authenticity

The increased ability to find obscure items on the Blank 1 of 1 has resulted in explosion of online collecting. Listen to the complete question

Blank 1: web, net, or internet

Assume Juan bought 50 ounces of gold for $1,750 as protection against rising inflation. He sold half the gold in 1980 at a price of $800 an ounce. Juan sold the other half in 1982 when the price was $400 an ounce. What would Juan's profit have been if he had sold all of his gold in 1980?

Cost per ounce= Total cost / Total ounces $1,750 / 50 =$35 Profit 1980= (Selling price per ounce - Purchase price per ounce) × Sales quantity in ounces ($800 - 35) × (50 / 2) =$19,125 19,125*2 = 38,250 OR 50*800 = 40,000 - 1,750 = 38,250

True or false: Financial leverage allows you to buy more expensive real estate than you otherwise could afford and to realize a higher return on your investment.

T (Reason: The use of borrowed funds gives you a chance to earn higher returns on investment.)

Calculating the Return on Investment Using Financial Leverage Dave bought a rental property for $200,000 cash. One year later, he sold it for $240,000. Suppose Dave invested only $20,000 of his own money and borrowed $180,000 interest-free from his rich father. What was his return on investment?

40,000 dollar return 40,000/20,000 = 200% return

In regards to when you can begin collecting benefits, what is the age in which your monthly benefit will be the highest?

70

Federal law requires REITs to distribute at least ___ percent of their taxable annual earnings to stockholders.

90

Assume Juan bought 50 ounces of gold for $1,750 as protection against rising inflation. He sold half the gold in 1980 at a price of $800 an ounce. Juan sold the other half in 1982 when the price was $400 an ounce. What was Juan's profit in 1980 and in 1982?

Cost per ounce= Total cost / Total ounces $1,750 / 50 =$35 Profit 1980= (Selling price per ounce - Purchase price per ounce) × Sales quantity in ounces ($800 - 35) × (50 / 2) =$19,125 OR 50/2 --> 25*800 --> 800 - 35 = 765*25 = 19,125 Profit 1982= (Selling price per ounce - Purchase price per ounce) × Sales quantity in ounces ($400 - 35) × (50 / 2) =$9,125

Which of the following are reasons discussed in the video of why planning for retirement is essential? During your retirement years, prices for almost everything you want or need will increase due to inflation. When people retire, they can expect, on average, to live an additional 16 to 30 years after retirement. Individuals entering retirement have a decreased amount of wants and needs. During your retirement years, prices for almost everything you want or need will increase due to inflation and Individuals entering retirement have a decreased amount of wants and needs. During your retirement years, prices for almost everything you want or need will increase due to inflation and When people retire, they can expect, on average, to live an additional 16 to 30 years after retirement.

During your retirement years, prices for almost everything you want or need will increase due to inflation and When people retire, they can expect, on average, to live an additional 16 to 30 years after retirement.

Which of the following are types of REITs?

Equity REIT Hybrid REIT Mortgage REIT

Which of the following are examples of direct real estate investments?

Home (residence) Raw land Vacation home

Which one of the following is not a federal law requirement for REITs? Refrain from engaging in speculative short-term holding of real estate for quick gains Invest at least 50% of total assets in real estate Distribute at least 90% of taxable earnings to shareholders Have at least 100 shareholders

Invest at least 50% of total assets in real estate (Reason: REITs must invest at least 75% in real estate.)

Which of the following are examples of indirect real estate investments?

Investment in 2nd mortgages REITs Real estate syndicate

Which of the following is true about diversification and real estate?

It is difficult for the individual investor to diversify real estate investments.

Grace and Maddie both earn $26,000 a year. Maddie invests $2,500 in a Tax Sheltered Annuity (TSA). All other factors are the same between Grace and Maddie. Because Maddie used a TSA, she has _______ taxable income and ______ take-home pay.

Lower; higher

Which of the following are the most popular gold bullion coins today?

Mexican 50 Peso Australian Kangaroo Nugget Canadian Gold Maple Leaf

Felice bought a duplex apartment at a cost of $150,000. Her mortgage payments on the property are $940 per month, $121 of which can be deducted from her income taxes. Her real estate taxes total $1,440 per year, and insurance costs $900 per year. She estimates that she will spend $1,000 each year per apartment for maintenance, replacing appliances, and other costs. The tenants will pay for all utilities. What monthly rent must she charge for each apartment to break even?

Monthly Costs: Mortgage payment: 940 Real estate tax: 1,440/12 = 120 Insurance: 900/12 = 75 Maintenance: 1,000*2 --> 2,000/12 = 167 Total: 1,302 for the whole Duplex 1,302/2 = 651 per apartment

Felice bought a duplex apartment at a cost of $150,000. Her mortgage payments on the property are $940 per month, $121 of which can be deducted from her income taxes. Her real estate taxes total $1,440 per year, and insurance costs $900 per year. She estimates that she will spend $1,000 each year per apartment for maintenance, replacing appliances, and other costs. The tenants will pay for all utilities. What must she charge to make $2,000 in profit each year?

Monthly Costs: Mortgage payment: 940 Real estate tax: 1,440/12 = 120 Insurance: 900/12 = 75 Maintenance: 1,000*2 --> 2,000/12 = 167 Total: 1,302 for the whole Duplex 2,000/12 --> 167 1,302 +167 --> 1,469/2 apartments = 734.50

Audra owns a rental house. She makes mortgage payments of $600 per month, which include insurance, and pays $1,800 per year in property taxes and maintenance. Utilities are paid by the renter. (Ignore any tax effects.) How much should Audra charge for monthly rent to cover her costs?

Mortgage: 600 Property tax + maintenance : 1,800/12 = 150 600 + 150 = 750

Audra owns a rental house. She makes mortgage payments of $600 per month, which include insurance, and pays $1,800 per year in property taxes and maintenance. Utilities are paid by the renter. What should Audra charge for monthly rent to make $1,000 profit each year?

Mortgage: 600 Property tax + maintenance : 1,800/12 = 150 600 + 150 = 750 1,000/12 = 83.33 750 + 83.33 = 833.33

Proof bullion coins are specially minted for _____.

collectors