CALIFORNIA REAL ESTATE FINANCE: CHAPTER 1: FINANCE AND INVESTMENT. TERMS AND CHAPTER QUIZ
Bond
A certificate of indebtedness issued by a governmental body or business entity; it will generate a return for the bondholder in the form of periodic payments of interest until the principal is repaid in lump sum.
Mutual fund
A company that invests its capital in a diversified portfolio of securities on behalf of its investors, who own shares in the fund
Mortgage Loan
A loan secured by a mortgage or deed of trust that creates a lien against real property; especially, a loan used to purchase real property when that same property serves as security for the loan.
Lien
A nonpossessory interest in real property, giving the lienholder the right to foreclose if the owner does not pay a debt owed to the lienholder
Interest
A periodic charge that a lender requires a borrower to pay in exchange for the temporary use of the borrowed funds, usually expressed as an annual precentage of the remaining principal balance. Sometimes referred to as the cost of borrowing money.
Return on investment
A profit that an investment generates for an investor, over and above the amount of money that he originally invested in it
Certificate of deposit
A savings arrangement in which a depositor agrees to leave money on the deposit for the use of the financial institution for a specified period, or pay a penalty for earlier withdrawal
Dividend
A share of a company's profits paid to a stockholder as a return on the investment
Stock
A share of a corporation's stock represents a fractional ownership interest in the corporation; a shareholder may receive a return on the investment in the form of dividends and/or appreciation of the share's value
Investment capital
Accumulated wealth (savings) made available to fund business enterprises or other ventures, projects, or transactions.
Appreciation
An increase in the value of an asset over time; the opposite of depreciation
Debt investment
An investment in which temporary use of the investor's funds is exchanged for interest payments, pursuant to an agreement that requires repayment of the funds or allows withdrawal of the funds
Ownership investment
An investment in which the investor's funds are used to purchase an asset or property interest in an asset
Liquid asset
An investment that can be quickly and easily converted into cash
Securities
Investment instruments that confer an interest or a right to payment, without allowing direct managerial control over the enterprise invested in
Collateral
Property (personal or real) accepted by a lender as security for a loan. The lender has the right to keep or sell the collateral if the borrower fails to repay the loan as agreed.
Portfolio
The mix of investments and cash reserves held by an investor
Principal
The original amount of a loan, or the remainder of that amount after part of it has been repaid.
Diversification
The practice of investing in ta variety of different ways and/or in a variety of different sectors of the economy, to make a portfolio safe
Yield
The rate of return that an investor receives on an investment, usually stated as an annual percentage of the amount invested
Market interest rates
The rates that, under current economic conditions, are paid on particular types of investments or changed for particular types of loans.
Prepayment risk
The risk that a loan will be paid off sooner than expected (often because market interest rates have dropped), reducing the lender's anticipated yield.
Interest rate risk
The risk that after a loan is made for specified term at a fixed interest rate, market interest rates will rise and the lender will miss the opportunity to invest the loaned at a higher rate.
Return of investment
When an investment generates enough money for an investor to replace the amount of money that they originally invested in it. Also called recapture.
Investment
When someone (an investor) makes a sum of money (investment capital) available for use by another person or entity, in the expectation that this will generate a return (a profit) for the investor.
In connection with a loan, the term "principal" refers to the: a. amount borrowed b. lender c. property purchased d. repayment period
a. amount borrowed
A company that invests in a diversified portfolio of stocks and bonds on behalf its investors/owners is called a/an: a. mutual fund b. security fund c. insider trading firm d. liquidity firm
a. mutual fund
An investor who might need to cash in investments to cover unexpected expenses is likely to be especially concerned about: a. bond yields b. liquidity c. prepayment risk d. insider trading
b. liquidity
Stocks and bonds are the primary examples of: a. ownership investments b. securities c. collateral d. All of the above
b. securities
Stevenson borrowed money from Acme Savings to buy a rental house. He paid 15% down. Which of the following is true? a. Acme has made a debt investment b. Stevenson has made an ownership investment c. Both of the above d. Neither of the above
c. Both of the above
The phrase "return on an investment" refers to: a. recapture of the amount originally invested b. an annual yield of at least 10% c. an investor's profit over and above the amount originally invested d. net income after deducting dividends
c. an investor's profit over and above the amount originally invested
As a general rule, the safer the investment: a. the less liquid the yield b. the less certain the yield c. the lower the yield d. the higher the yield
c. the lower the yield
The return that a mortgage lender receives on its typical investments takes the form of: a. appreciation b. dividends c. rental income d. interest
d. interest
When market interest rates are rising, a lender making a 30-year loan at a fixed interest rate will probably be most concerned about: a. prepayment risk b. liquidity risk c. mutual fund risk d. interest rate risk
d. interest rate risk
All of the following are debt investments, except: a. savings account b. government bond c. certificate of deposit d. purchase of real estate
d. purchase of real estate
