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41 Cards in this Set

  • Front
  • Back

Investment land can be classified into the following types (3):

Paper lots


Blue top lots


Finished lots

________________ are vacant lots that have zoning approval for development.

Paper lots

_____________ are lots where some fees have been paid and the process of development has begun including rough grading of the property and interim drainage and erosion controls.

Blue top lots

_______________ are lots that are ready for construction with all development fees paid.

Finished lots

____________ is a risky investment because it requires a long holding period and does not provide the investor with an annual cash flow.

Raw land

______________ does not require constant maintenance, as developed properties do, and it does not lose value over time the way some developed properties do.

Raw land

Investors in undeveloped land are in essence buying a ___________ on development.

Call option

A __________________ pricing models can be used to value land as a call option.

Binomial option

The strike price when valuing undeveloped land as a call option is __________________________.

Construction and required development costs

The underlying asset when valuing undeveloped land as a call option is __________________________.

The land and any improvement previously made to it

The payoff of an option on undeveloped land is the difference between the value of the __________________ and the ____________________.

Completed project


Construction and development costs

If the value of an option is greater than the strike price, then the option is __________________.

in-the-money

Advantages of owning timberland (5)

Low correlation with stock and bond returns


Hedges inflation


Real asset investment


Flexible harvest schedules


Multiple uses for forest products

Disadvantages of investing in timberland (5)

Natural disasters can destroy the investment


Values are tied to cyclical industries


Timber supplies are not fixed


Technology and recycling may diminish the demand for timber


Long investment horizon

________________ is an investment in a real asset that generates crop income.

Farmland

The cash flow generated from farming is more closely linked to ______________________ than rental prices.

Commodity prices

__________________ provides a renewable annual cash flow stream from crop income, enjoys a potential steady cash flow stream if the land is leased, and has short growth cycle.

Farmland



The short growth cycle of farmland increases it value because it allows for _____________________.

Multi-use options

Characteristics that help identify investable infrastructure (7)

Public use of the asset or service


Monopolistic power to price


Government related


Provides an essential service


Generates cash


Conducive to privatization


Projects tend to be capital intensive and long term

________________ infrastructure includes energy and utilities, communications, and transportation.

Economic

________________ infrastructure includes education, health care facilities, prisons, parks, and public housing.

Social

A positive influence of _________________ is that there is a great need for infrastructure and governments can't afford it.

Government

_____________________ is tied to infrastructure and if the government sells or leases infrastructure to private investors, they can use the proceeds to make additional infrastructure investments.

Economic growth

A negative influence of _____________________ is that they often stay involved even after the or lease of infrastructure to private investors.

Government

Infrastructure is exposed to _______________ risk because the government may revoke the lease of an asset.

Regulatory

Indirect investments in infrastructure include (3)

Stock and funds of stock of public infrastructure companies


Closed-end funds


Unlisted (evergreen) open-end funds

Similarities between infrastructure and _________________ include high current yields due to high dividend investments, steady cash flows due to the monopolistic nature of the investments, long duration investments, and the possibility of built-in inflation protection.

Fixed income

Similarities between infrastructure and _________________ include investment in real assets and investments that generated (often stable) cash flows.

Real estate

Similarities between infrastructure and _______________ include: infrastructure operating companies can add value through financial engineering and infrastructure operating companies may add value through increasing operating efficiencies in the purchased or leased assets.

Private equity

_________________ is an intangible real assets that can be owned but does not have a physical form.

intellectual property

If an assets is ________________, then others are prevented from using or enjoying them.

Excludable

A ____________________ approach is the best way to value an IP investment.

DCF

Because many real assets are illiquid, not treaded on an exchange, and have values based on appraisals, they often exhibit prices that are ___________________.

Smoothed

___________________ results in lower price and return volatility which makes the asset look less risky than it might actually be.

Smoothing

Appraisers may unintentionally ______________ assets that have experienced a large increase in value and _____________ assets that have experienced a large decrease in value.

Underprice

Overprice




_________________ often lag true markets values which results in lower reported correlations compared to actual correlations.

Appraised values

Real assets returns can be managed by (4)

Market manipulation


Model manipulation


Selective appraisals


Favorable marks

_______________________ refers to the management of returns using trading activity.

Market manipulation

___________________ refers to the management of returns by altering valuation model assumptions.

Model manipulation

_________________ refers to the management of returns by manipulating the timing of appraisals and by strategically selecting which assets are being appraised.

Selective appraisals

____________________ refers to the management of returns whereby a manager requests a valuation of a thinly traded asset from a source that has an incentive to bias the value in favor of the client.

Favorable mark