FINC 349 LECTURE 13

This is a set of flashcards designed to review key concepts from Chapters 1-8 in preparation for the midterm exam.

What are the two types of mortgages mentioned?

Fixed rate mortgages and adjustable rate mortgages.

What drives housing prices?

Supply and demand, consumer confidence, and labor productivity.

What percentage of the US GDP is driven by consumption?

70%.

What is the key difference between renting and owning a property?

As a renter, you are not responsible for maintenance and repairs; the owner is.

Who is responsible for property taxes in a rental agreement?

The property owner.

What type of expenses does a property owner incur?

Insurance, maintenance, property taxes, and cleaning.

What is a tax shield?

The value derived from tax deductibility of certain expenses.

How do you calculate equity to value ratio?

Divide the amount of equity by the property value.

What happens to the balance of a mortgage over time?

The principal balance goes down as more principal is paid off.

What should you do with complex economic concepts during discussions?

Start with the basics and then delve into more complex details.

What two cash flow analyses should be performed when comparing renting vs ownership?

Present value of renting and present value of owning.

What term describes the comparison of two financial choices?

Differential analysis.

Is property tax deductible from income?

Yes, property taxes are tax deductible from income.

What is the benefit of understanding both basic and complex economic concepts?

It allows for effective communication and understanding in professional settings.

What is level debt service?

A fixed payment amount for principal and interest over the life of a loan, with adjustments in how much goes to principal versus interest over time.