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# Ch 15 mathematics of real estate finance

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### Ch 15 mathematics of real estate finance

1. 1. Mathematics of Real Estate FinanceChapter 151
2. 2. Interest• Rent—paid for the use of money2
3. 3. Simple Interest• Paid only on the amount of principal still owed – Interest ceases on principal repaid – Derived from I=PRT3
4. 4. Add-On Interest• Rent paid on the entire amount of principal for the entire period• Disregards any principal repaid• Acts to almost double contract rate• Derived from AIR=2IC/P (n+1)4
5. 5. Nominal and Effective Rates of interest• Nominal rate of interest is contracted rate• Effective rate of interest is the actual rate paid by the borrower5
6. 6. Compound Interest• Interest paid on interest earned6
7. 7. Compound Worth of an Annuity• Calculating the future worth of a series of regular deposits, each made at the beginning of a period7
8. 8. Time Value of Money• Money not received until some time in the future is worth less today• Present worth of money• Present worth of an annuity8
9. 9. Payment Schedules• Amortization—systematic repayment of a debt• Annual payments• Monthly payments• Loan constants• Distribution of principal and interest• Total interest costs9
10. 10. Measuring Profitability• Breakeven analysis• Return on investment (ROI)• Lender’s profitability calculations• Investor’s profitability calculations• Net present worth method10
11. 11. Discounting Trust Deeds and Mortgages• Point—one percent of loan amount• Discounts – Rule-of-thumb method – Discount cash flow method11