Deck 22: Real Estate Investment Performance and Portfolio Considerations

Question 1

Which of the following statistics provides a measure of the extent to which returns tend to move together or have no relationships?

A) The coefficient of determination
B) The variance
C) The coefficient of variation
D) The covariance

Answer 1

The covariance

Question 2

"If the returns of two securities are compared over time and there appears to be no relationship between their movements,what is the likely value of their coefficient of correlation?"

A) +1
B) -1
C) 0
D) +¥ (infinity)

Answer 2

0

Question 3

You would get the greatest amount of diversification if two securities are

A) positively correlated
B) negatively correlated
C) notcorrelated
D) perfectly correlated

Answer 3

negatively correlated

Question 4

The FRC Property Index can be characterized by all of the following except:

A) theindex includes only properties with no outstanding mortgage debt.
B) theinformation used in compiling the index is voluntarily contributed by property owners.
C) theindex reflects payments to both property managers and portfolio asset managers.
D) allof the above are true.

Question 5

On January 1st,an investor purchases security A for $105.Over the next four months,dividends totaling $15 were paid on securityA.On March 31st,security A was sold for $120.What is the holding period return for security A?

A) 0.0%
B) 14.3%
C) 25.0%
D) 28.5%

Question 6

The variability on an asset's returns represents ________.

A) Flexibility
B) Profitability
C) Risk
D) Default

Question 7

With regards to real estate investments,risks which are associated with the type of property,its location,design,lease structure,etc.can be thought of as:

A) marketability risk.
B) liquidity risk.
C) business risk.
D) interest rate risk.

Question 8

When comparing investment alternatives,the standard deviation is deemed to be a measure of risk.

Question 9

The coefficient of variation of the returns,also known as the risk-to-reward ratio,is defined as:

A) thestandard deviation of returns divided by the mean return.
B) thevariance of return multiplied by the mean return.
C) thevariance of returns divided by the standard deviation of returns.
D) none of the above.

Question 10

Geometric mean returns are:

A) simple averages of holding period returns.
B) expressed as compound rates of interest.
C) more applicable when no specific time interval is considered to be any more important than another.
D) widely used in statistical studies spanning very long period of time.

Question 11

As mentioned in the text,the data sources used to produce investment returns on real estate include:

A) theNational Association of Real Estate Professionals (NAREP).
B) theNational Association of Real Estate Investment Trusts (NAREIT).
C) theNational Board of Realtors (NBR).
D) allof the above.

Question 12

The unit of measure that is used by portfolio managers to measure returns for individual securities on a periodic basis is the

A) Return on Investment (ROI)
B) Holding Period Return (HPR)
C) Geometric Mean Returns
D) Arithmetic Mean Returns

Question 13

The optimal portfolio is obtained by combining a group of securities which,by themselves,offer the highest returns with the lowest risk.

Question 14

Much like the securities markets,there is a large,centralized collection of real estate transactions and operating income data.

Question 15

When used to evaluate the performance of an investment,the geometric mean is considered to be superior to the arithmetic mean.

Question 16

The FRC Property Index includes property value increases or decreases only when properties are sold since the sale price is the only true measure of market value.

Question 17

Assume a portfolio is comprised of two securities,A and B,whose standard deviations are 0.0412 and 0.0721,respectively.If their covariance is 0.002,what is their coefficient of correlation?

A) 0.005
B) 0.115
C) 0.673
D) 1.485

Question 18

The optimal combination of securities that provides the greatest amount of return for each level of risk is know as:

A) theexpected frontier.
B) theeconomic frontier.
C) theefficient frontier.
D) none of the above.

Question 19

An investor in a mortgage REIT is basically buying equity shares of an entity whose assets are mainly mortgages.

Question 20

Both levered and unlevered properties are included in the FRC Property Index.

Question 21

In comparison to portfolios comprised entirely of corporate stocks and bonds,investment portfolios which include some form of real estate investment (as indicated by EREIT and FRC returns in the text)tend to offer lower levels of risk for equivalent returns.

Question 22

As long as the coefficient of correlation between two stocks is less than +1,some reduction in risk can be obtained by combining the securities.

Question 23

If two securities have the same positive mean returns and they are perfectly,negatively correlated,an investor in such securities will earn a positive return with zero risk.