PRII Ch 24

All investors desire their investments to increase in value. However, (24)

• the degree of return is inversely related to the degree of risk.
• the more the investor stands to gain, the greater the risk that the investor may lose.
• investments requiring intense management have lesser returns.
• the more liquid an investment is, the greater the chances are that the investment will not appreciate.

Two of the rewards that investments offer are (24)

• income and tax benefits.

• negative leverage and appreciation.

• appreciation and taxation.

• positive leverage and prestige.

An investor invests in fifteen diversified bond funds. This is an example of an investment in

• money.
• equity.
• debt.
• real estate.

A real estate investment can take a long period of time to sell. For the investor, this means that real estate is

• management intensive.
• insensitive to marketing.
• vulnerable to seller's markets.
• relatively illiquid.

Compared to a stock portfolio, a real estate investment would be considered

• a riskier investment
• a more management-intensive investment.
• a shorter-term investment.
• a more leveraged investment.

Six investors purchase a shopping center. One investor manages the tenants and another handles the marketing and leasing. Two investors manage accounting and finance, and the remaining two run the management office. This is a possible example of

• a general partnership.
• a limited partnership.
• a real estate investment trust.
• an investment conduit.

Taxable income produced by an income property is

• gross income minus expenses plus land and building depreciation
• gross income minus expenses minus land and building depreciation.
• gross income minus building depreciation plus land depreciation.
• gross income minus expenses minus building depreciation.

As a general rule, in deriving taxable income on an investment property, it is legal to

• deduct principal and interest payments from income.
• deduct principal payments from income.
• deduct interest payments from income.
• deduct principal and interest payments from income and capital gain.

Which of the following is true of the tax treatment of a principal residence?

• The owner may deduct the property's interest and principal from ordinary income.
• The owner may depreciate the property and deduct depreciation expenses.
• The owner can deduct any capital gain when the property is sold.
• The owner may be able to avoid capital gain tax when the property is sold.

An investment property seller pays $14,000 in closing costs. These costs

• may be deducted from personal income.
• may be deducted from the property's income
• may be deducted from the sale price for gains tax purposes.
• may be deducted from the adjusted basis for gains tax purposes.