Risk, Return

1
Risk, Return Time Value of Money

• Dr. Jim Burton
• Marketing Real Estate
• Richards College of Business

2
Overview

• Risk
• Cash Flow
• Return Ratios
• Future Value
• Present Value
• Loan Payments
• Sinking Fund Factor

3
Types of Risk

• Business risk occupancy, gross income
  expenses
• Financial risk leverage interest rates
• Inflation risk
• Liquidity risk cannot sell quickly

4
Cash Flow

• Gross Income
• Vacancy
• Effective Gross Income
• Operating Expenses
• Net Operating Income
• Debt Service
• Before-Tax Cash Flow

5
Return Ratios

• Income RatioNOI/GI
• Exp Ratioop. exp./GI
• ValueNOI/OAR
• GIMPrice/GI

6
Future Value

• Future Value of 1 how a lump sum invested will
  grow at compound interest.
• Future Value of an Annuity how a periodic equal
  payment will grow at compound interest.

7
Present Value

• Present Value of 1 what 1 due in the future
  is worth today.
• Present Value of an Annuity what a number of
  equal payments due in the future are worth today.

8
Loan Payment

• Installment to Amortize a Loan monthly payment
  on a mortgage loan.
• Sinking Fund Factor how much to save each period
  to accumulate 1 in the future.