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- Would you rather invest in: (compare and contrast) 1. Other Investment Assets 2. Alternatives to Fixed Income and EquitiesWhat are the two types of risk according to the Capital Asset Pricing Model? Which of the two types of risk cannot be reduced and why? How can the risk specifically in a Real Estate Investment be reduced? Make use of examples а.What serious drawbacks do the much-used payback method of investmentscreening have?
- In general, what effect would a reduction in risk have on “going-in” cap rates? What would this effect be if it occurred at the same time as an unexpected increase in demand? What would the effect on property values be?What are the major disadvantages of the use of the internal rate of return method of analyzing capital investment proposals?Which of the following methods does not consider the investment’s profitability? a. ARR b. Payback c. NPV d. IRR
- What is the capital asset pricing model (CAPM)? What does it tell us about the required return on arisky investment?When do you think a person would opt to use the Payback Period Method instead of the Net Present Value or Internal Rate of Return? Give an example.Generally, the ____ is considered to be a more realistic reinvestment rate than the ____. a. risk-free rate; cost of capital b. risk-free rate; internal rate of return c. cost of capital; internal rate of return d. internal rate of return; cost of capital
- Why are the net present value and the internal rate of return models superior to the payback period and the accounting rate of return models?What is a “required rate of return”? Why is it called the “cost ofmoney” or the “price of money”?Which of the following statements describing the elements of intrinsic valuation is most accurate? A.) When the present value of the cashflows is discounted with the appropriate rate and this present value is positive, then the asset providing these cashflows has a value to the investor. B.) The risk-free rate is the lowest rate that an investor can earn from short-term investments. C.) Cashflows may include depreciation expenses and amortization costs. D.) A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best.
