RE FIN WEEK 2 HW - Define Hazard Insurance? In what cases shoulld a Firm seek to
ID: 2808128 • Letter: R
Question
RE FIN WEEK 2 HW -
Define Hazard Insurance? In what cases shoulld a Firm seek to Restructure a Mortgage Loan?
What is a Short Sale and why would an Individual do this?
What is meant by the Time Value of Money? Why must a Firm use Return on Investments as one of the means for Evaluating Projects?
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Explanation / Answer
Hazard Insurance: Hazard insurance is a term sometimes used to describe risks covered by a homeowner’s insurance policy. Covered risks (or hazards) often include damage to your home caused by fire and smoke, theft and vandalism, among others. As long as the specific event is covered within the policy, the property owner will receive compensation to cover the cost of any damage incurred.
Mortgage Restructuring: Mortgage Restructuring takes the existing mortgage and changes the terms to make the monthly payments more affordable for you. This is accomplished by lowering the interest rate and/or extending the term. Firms primarily use mortgage restructuring which are struggling financially due to hardship or an unexpected change in their financial performance.
Short Sale: A short sale is the sale of an asset or stock the seller does not own. It is generally a transaction in which an investor sells borrowed securities in anticipation of a price decline; the seller is then required to return an equal number of shares at some point in the future.
Time Value of Money: The time value of money (TVM) is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also sometimes referred to as present discounted value. The time value of money explains why interest is paid or earned: Interest, whether it is on a bank deposit or debt, compensates the depositor or lender for the time value of money.
Return on Investment: Return on Investment (ROI) is a performance measure, used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI measures the amount of return on an investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio. This method should be used as this can directly compare the projects keeping in mind the return generating capacity of the project on the cost of the project.
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