Professional Documents
Culture Documents
True/False Questions
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1. In direct real estate investment, the investor holds legal title to the property.
2. In indirect real estate investment, the investors appoint a trustee to hold legal title on behalf of all
the investors in the group.
3. Limited partnerships and syndicates are examples of direct real estate investment.
4. Under the current law, if you rent out a second home for 14 days or less, the income is tax-free.
6. The Tax Reform Act of 1986 adversely affects the investment potential of real estate syndicates.
7. A real estate syndicate provides professional management and unlimited liability for its
members.
8.
F 10. Indirect real estate investments include investing in real estate syndicates, REITs, and
participation certificates.
Answer: True Difficulty: Med LO: 1 Page: 561
F 11. Ginnie Maes are not backed by the full faith and credit of the Federal Government.
Answer: False Difficulty: Med LO: 1 Page: 564
F 12. Many financial institutions hesitate to make loans on second or third mortgages.
Answer: True Difficulty: Easy LO: 1 Page: 563
F 13. A passive activity is a business or trade in which you do not materially participate.
Answer: True Difficulty: Med LO: 1 Page: 561
F 14. Passive loss is the total amount of losses from a passive activity minus the total income from the
passive activity.
Answer: True Difficulty: Med LO: 1 Page: 561
F 15. Many investors buy land with the intention of subdividing it.
Answer: True Difficulty: Easy LO: 1 Page: 561
16.
F 19. Real Estate Investment Trusts (REITs) must have at least 500 shareholders.
Answer: False Difficulty: Med LO: 1 Page: 562
F 20. Real Estate Investment Trusts (REITs) must distribute at least 90 percent of their net annual
earnings to shareholders.
Answer: True Difficulty: Easy LO: 1 Page: 562
F 21. The limited partnership is formed by a limited partner, who has unlimited liability for its debts.
Answer: False Difficulty: Med LO: 1 Page: 562
F 22. The limited partnership is formed by a general partner, who has unlimited liability for its
liabilities.
Answer: True Difficulty: Med LO: 1 Page: 562
F 23. A real estate syndicate provides professional management for its members.
Answer: True Difficulty: Easy LO: 1 Page: 562
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F
24.
A REIT is similar to a mutual fund or an investment company, and it trades on
stock exchanges or over-the-counter.
Answer: True Difficulty: Easy LO: 1 Page: 562
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F 25. There are three types of REITs: equity REITs, mortgage REITs, and hybrid REITs.
Answer: True Difficulty: Med LO: 1 Page: 562
F 26. Federal law requires REITs to distribute at least 10 percent of their net annual earnings to
shareholders.
Answer: False Difficulty: Med LO: 1 Page: 562
F 27. Federal law require REITs to have at least 20 shareholders. No more than half the shares may be
owned by 15 or fewer people.
Answer: False Difficulty: Med LO: 1 Page: 562
F 28. A participation certificate is an equity investment in a pool of mortgages that have been
purchased by one of the government agencies.
Answer: True Difficulty: Med LO: 1 Page: 564
F 29. Since first and second mortgage are risky investments, these provide relatively high rates of
return.
Answer: True Difficulty: Med LO: 1 Page: 563
F 31. Maes and Macs are guaranteed by agencies closely tied to the federal government, making them
just as secure as Uncle Sam's own bonds and notes.
Answer: True Difficulty: Med LO: 1 Page: 564
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F
32.
Thanks to Maes and Macs mutual funds, you now need as little as $1,000 to buy
shares in a unit trust or a mutual fund whose portfolio consists entirely of these securities.
Answer: True Difficulty: Easy LO: 1 Page: 564
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F 33. If you want a risk-proof real estate investment, participation certificates (PCs) are for you.
Answer: True Difficulty: Easy LO: 1 Page: 564
F 34. Real estate is an asset that is generally a good hedge against inflation.
Answer: True Difficulty: Easy LO: 2 Page: 564
F 35. The Tax Reform Act of 1986 has increased the appeal of investing in real estate.
Answer: False Difficulty: Med LO: 1 Page: 558
F 36. Direct real estate investments include single family dwellings, duplexes, apartments, land, and
commercial property.
Answer: True Difficulty: Hard LO: 1 Page: 558
F 37. REITs, mortgages, and pools are examples of indirect real estate investments.
Answer: True Difficulty: Med LO: 1 Page: 558
F 38. Housing will continue to be a not-so-liquid investment that promises steady returns over time.
Answer: True Difficulty: Med LO: 1 Page: 558
F 39. If you own a vacation home, the after-tax cost of owing it has decreased since 1987.
Answer: False Difficulty: Med LO: 1 Page: 560
40.
The primary reason you buy a vacation home is because you want to use it.
F 41. Commercial property refers to land and buildings that produce lease or rental income.
Answer: True Difficulty: Med LO: 1 Page: 560
F 43. Indirect real estate investments include investing in real estate syndicates, REITs, and
participation certificates.
Answer: True Difficulty: Med LO: 1 Page: 561
F 44. A REIT is a firm that pools investor funds and invests them in real estate or uses them to make
construction or mortgage loans.
Answer: True Difficulty: Med LO: 1 Page: 562
F 46. A REIT may engage in speculative, short-term holding of real estate to sell for quick profits.
Answer: False Difficulty: Med LO: 1 Page: 562
F 47. Real Estate Operating Companies, or REOCs, are a new variation of REITs.
Answer: True Difficulty: Easy LO: 1 Page: 563
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certificates.
48.
If you want a risk-proof real estate investment, you should invest in participation
F 49. Maes and Macs are not guaranteed by agencies closely tied to the federal government.
Answer: False Difficulty: Med LO: 1 Page: 564
F 50. Real property equity investments usually do not provide protection against purchasing power
risk.
Answer: False Difficulty: Med LO: 2 Page: 564
F 51. You gain entry to a shopping center investment by investing as little as $5,000 in a limited
partnership.
Answer: True Difficulty: Med LO: 2 Page: 564
F 52. If you are a limited partner, you are liable for losses beyond your initial investment.
Answer: False Difficulty: Med LO: 2 Page: 565
F 53. Your investment in a limited partnership does not absolve you from maintenance chores and
other administrative duties.
Answer: False Difficulty: Easy LO: 2 Page: 565
F 54. Financial leverage is the use of borrowed funds for investment purposes.
Answer: True Difficulty: Med LO: 2 Page: 566
F 55. A limited partner's liability is restricted by the amount of his or her investment.
Answer: True Difficulty: Med LO: 2 Page: 565
56.
F 57. General partners in a real estate partnership must bear all financial risks.
Answer: True Difficulty: Med LO: 2 Page: 565
F 58. Financial leverage is a disadvantage when property values and incomes are rising.
Answer: False Difficulty: Hard LO: 2 Page: 566
F 59. Financial leverage enables you to acquire a more expensive property than you could on your
own.
Answer: True Difficulty: Med LO: 3 Page: 566
F 61. Perhaps the largest drawback of direct real estate investments is the absence of large, liquid, and
relatively efficient markets for them.
Answer: True Difficulty: Med LO: 3 Page: 566
F 62. Under the Tax Reform Act of 1986, the long-standing favored tax treatment afforded long-term
capital gains is fully preserved.
Answer: False Difficulty: Med LO: 3 Page: 566
F 63. You can sell stocks and bonds in a few minutes at the market price, but this is not a case for real
estate.
Answer: True Difficulty: Easy LO: 3 Page: 566
64.
F 65. Diversification in direct real estate investment is difficult because of the large size of most real
estate projects.
Answer: True Difficulty: Easy LO: 3 Page: 566
F 66. It may take months to sell commercial property on limited partnership shares.
Answer: True Difficulty: Med LO: 3 Page: 566
F 67. During deflationary or recessionary periods, the values of real estate investments generally
increase.
Answer: False Difficulty: Med LO: 3 Page: 566
F 68. Diversification in direct real estate investments is quite easy because of the large size of most
real estate projects.
Answer: False Difficulty: Hard LO: 3 Page: 566
F 69. REITs, Ginnie Maes, Freddie Macs, and syndicates do not provide any diversification.
Answer: False Difficulty: Hard LO: 3 Page: 566
F 70. The tax shelter aspect of real estate syndicates no longer exists.
Answer: True Difficulty: Med LO: 3 Page: 566
F 71. Now real estate investors must use accelerated depreciation methods to recover the costs.
Answer: False Difficulty: Hard LO: 3 Page: 567
72.
F 73. The tax laws do not allow real restate investors to take losses in excess of the actual amounts
they invest.
Answer: True Difficulty: Hard LO: 3 Page: 567
F 74. Gold prices tend to go down by such factors as fear of war, political instability, and inflation.
Answer: False Difficulty: Med LO: 4 Page: 567
F 76. High interest rates depress gold prices because they make it very expensive to carry gold as an
investment.
Answer: True Difficulty: Med LO: 4 Page: 567
F 77. You can avoid storage and assaying problems by investing in gold bullion coins.
Answer: True Difficulty: Easy LO: 4 Page: 568
F 78. Diamonds and other precious stones can easily be turned into cash.
Answer: False Difficulty: Med LO: 4 Page: 569
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81.
F 82. Collectibles may be difficult to sell at the right price on short notice.
Answer: True Difficulty: Med LO: 4 Page: 573
F 87. On small gold bars, gold dealers and banks add a five to eight percent premium over the pure
gold bullion value.
Answer: True Difficulty: Med LO: 4 Page: 568
F 89. The first gold bullion coin ever produced by the U. S. government was issued in 2001.
Answer: False Difficulty: Easy LO: 4 Page: 568
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least two percent.
90.
Most brokers require a minimum order of ten coins and charge a commission of at
F 91. You may invest in gold by purchasing the common stocks of gold mining companies.
Answer: True Difficulty: Med LO: 4 Page: 568
F 92. Investments in silver, platinum, palladium, and rhodium are not used as a hedge against inflation.
Answer: False Difficulty: Med LO: 4 Page: 568
F 93. Unlike stocks and bonds, precious metals sit in vaults earning nothing.
Answer: True Difficulty: Med LO: 4 Page: 569
F 94. When you purchase precious stones, it is difficult to determine whether you are getting a good
stone.
Answer: True Difficulty: Med LO: 4 Page: 569
F 96. Collectibles include rare coins, works of art, antiques, stamps, rare books, paintings, and other
items that appeal to collectors and investors.
Answer: True Difficulty: Hard LO: 4 Page: 569
F 97. The world of collectibles is expanding onto the Web at a geometric rate.
Answer: True Difficulty: Med LO: 4 Page: 570
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F
98.
armoires and vintage cars.
Collectibles dealers say the Net is best suited to large items such as antique
F 99. Prices of collectibles aren't necessarily cheaper on the Web, but it's much easier to compare them.
Answer: True Difficulty: Hard LO: 4 Page: 571
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111. In what type of real estate investment does the investor holds legal title to the property?
A) Ginnie Mae
B) participation certificates (PCs.
C) real estate investment trusts (REITs.
D) direct investment
E) indirect investment
Answer: D Difficulty: Hard LO: 1 Page: 558
112. An example of an indirect real estate investment is
A) a single-family home.
B) a duplex.
C) a real estate investment trust (REIT. .
D) land.
E) an apartment building.
Answer: C Difficulty: Hard LO: 1 Page: 559
113. Real property equity investments are usually considered attractive during times of
A) deflation.
B) disinflation.
C) inflation.
D) recession.
E) unemployment.
Answer: C Difficulty: Med LO: 2 Page: 564
114. One of the advantages of being a limited partner in a real estate investment venture is that you have
____________ liability.
A) no financial
B) unlimited financial
C) product
D) limited financial
E) implied
Answer: D Difficulty: Hard LO: 2 Page: 565
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115. General partners in a real estate investment venture have ____________ liability.
A) no financial
B) unlimited financial
C) limited financial
D) express
E) implied
Answer: B Difficulty: Easy LO: 2 Page: 565
116. One of the advantages of investing in limited partnerships, REITs, mortgages, or participation
certificates is that you do not need to worry about
A) federal income taxes.
B) state income taxes.
C) capital gains taxes.
D) declining property taxes.
E) maintenance chores.
Answer: E Difficulty: Hard LO: 2 Page: 565
117. Financial leverage refers to
A) the use of borrowed funds for investment purposes.
B) the mathematical law of large numbers.
C) financial averages.
D) buying and selling short.
Answer: A Difficulty: Med LO: 2 Page: 566
118. One of the possible advantages of investing in a real estate limited partnership is that you
A) don't have to worry about capital gains tax.
B) don't have to pay federal income tax.
C) don't have to pay state income tax.
D) gain entry to a shopping center or large building by investing as little as $5,000.
Answer: D Difficulty: Med LO: 2 Page: 564
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131. Investment tax credit is eliminated entirely for all types of real estate except
A) low income housing projects.
B) single family dwellings.
C) shopping centers.
D) raw land.
E) developed land.
Answer: A Difficulty: Hard LO: 3 Page: 567
132. The Tax Reform Act of 1986 dictates that for commercial property, the following depreciation method
must be used:
A) sum-of-the-digits.
B) straight line.
C) declining balance.
D) the rule of 78s.
Answer: B Difficulty: Med LO: 3 Page: 567
133. Which of the following is a possible disadvantage of real estate investments?
A) financial leverage
B) hedge against inflation
C) illiquidity
D) easy entry
E) limited financial liability
Answer: C Difficulty: Med LO: 3 Page: 566
134. Which one of the following is a possible disadvantage of real estate investments?
A) financial leverage
B) hedge against inflation
C) easy entry
D) short period of depreciation
E) long period of depreciation
Answer: E Difficulty: Hard LO: 3 Page: 566
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135. When is the price of a precious metal, such as gold, silver or platinum, likely to increase?
A) during recession
B) during depression
C) during peace time
D) during war time
E) during inflation
Answer: D Difficulty: Hard LO: 4 Page: 567
136. Investors buy precious metals as a hedge against
A) recession.
B) depression.
C) inflation.
D) deflation
Answer: C Difficulty: Easy LO: 4 Page: 567
137. Easing of international tensions or disinflation causes gold price to
A) skyrocket.
B) increase moderately.
C) remain stable.
D) decline.
Answer: D Difficulty: Med LO: 4 Page: 567
138. High prevailing interest rates in the economy cause gold prices to
A) skyrocket.
B) increase moderately.
C) remain stable.
D) decline.
Answer: D Difficulty: Med LO: 4 Page: 567
139. In general, the price of gold
A) stays stable.
B) fluctuates daily.
C) changes monthly.
D) is not affected by political upheavals.
E) manipulated by Swiss gold dealers.
Answer: B Difficulty: Easy LO: 4 Page: 567
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