If Tax-Exempt Institutions Pass on to Borrowers in the Real

question 17

Multiple Choice

If tax-exempt institutions pass on to borrowers in the real estate investment market a significant share of the tax shields they have, then what empirical evidence of this would we expect to see?

• A) Mortgage interest rates would be higher than municipal bond rates
• B) Mortgage interest rates would be about the same as municipal bond rates
• C) mortgage interest rates would be lower than municipal bond rates
• D) Insurance premiums on whole-life policies would be lower than premiums on comparable term insurance

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Definitions:

Accept

To agree to take or receive something offered.

Profitability Index

A financial tool used to evaluate the desirability of an investment, calculated by dividing the present value of future cash flows by the initial investment.

Positive NPV

A scenario in which the net present value of a project's cash inflows exceeds its cash outflows, indicating profitability.

Negative NPV

A situation where the net present value (NPV) of a project or investment is less than zero, indicating that the projected cash flows are insufficient to cover the initial investment.