FIN 48489 | Course Paper

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In an indexed lease, rents are dependent on a regularly reported index, most commonly

the consumer price index (CPI). By using the CPI as an index rate, the risk of

unexpected increases in general inflation is shifted to the __________, and therefore a

_________ base rental rate will typically be required.

A. Owner; higher

B. Owner; lower

C. Tenant; higher

D. Tenant; lower

In calculating net operating income, vacancy losses must be subtracted from the gross

income collected. The normal range for vacancy and collection losses for apartment,

office, and retail properties is:

A. between zero and one percent

B. between one and five percent

C. between five and fifteen percent

D. between fifteen and twenty percent

Given the following information, calculate the debt yield ratio on the following

commercial property. Estimated Net Operating Income in the first year: $2,500,000,

Debt service in the first year: $960,000, Loan amount: $20,000,000, Purchase price:

$27,300,000

A. 4.8%

B. 12.5%

C. 68.6 %

D. 75.2 %

Since hazard insurance premiums are paid up-front, the buyer will have to reimburse

(credit) the seller a portion of the premium at the closing. Suppose that the insurance

policy’s coverage began on December 15th of the prior year and the property transaction

is set to close on March 16th of a 365-day year. The premium paid originally by the

seller was $250. If the coverage will expire as of the end of day December 14th in the

current year, what is the dollar amount that the buyer must credit the seller?

A. $0.00

B. $62.33

C. $187.67

D. $250.00

A city’s potential for growth or its susceptibility to decline is determined by a set of

economic activities that the city provides for the world beyond its boundaries.

Economists refer to this set of activities as a city’s:

A. linkages

B. economic base

C. local economic activities

D. economies of scale

Suppose a homeowner is reluctant to refinance until he is reasonably sure that interest

rates are not going to fall appreciably from where they currently are. In this case,

thehomeowner appears to be concerned about which of the following costs associated

with refinancing?

A. Opportunity cost

B. Tax consequences

C. Default risk

D. Upfront fees

One measure of the importance of a publicly traded asset class in the U.S. economy can

be calculated by multiplying the number of publicly traded shares by the current market

price of the stock. The result of this calculation is more commonly referred to as:

A. market capitalization

B. capitalization rate

C. price-earnings ratio

D. earnings-per-share ratio

Suppose a developer is interested in building a new residential subdivision. Through his

market research, the developer has determined that the target market segment potential

in year 1 consists of 160 households. If the developer projects that he will be able to sell

24 homes in the first year, what is his assumed capture rate?

A. 6.67%

B. 15%

C. 24%

D. 85%

Given the following information, calculate the appropriate after-tax discount rate. Tax

rate on comparable risk investment: 35%, Investor’s before-tax opportunity cost: 12%,

Capitalization rate: 8%.

A. 2.8%

B. 4.2%

C. 5.2%

D. 7.8%

Suppose you have just purchased your first home for $300,000. At the time of purchase

you could afford to commit 20% of the purchase price to a down-payment. Suppose

over time you paid down the principal of the loan to $220,000 and at that point in time

you can no longer make any mortgage payments (i.e., you default on the loan). If the

lender were to foreclose on your property and sell it for $190,000, determine the

amount of the loan’s principal that the lender was unable to recover due to the default.

A. $30,000

B. $50,000

C. $240,000

D. $300,000

Suppose that you were interested in building a luxury apartment complex in your

hometown. In your analysis of local demographics, you discover that the target market

makes up only 5% (core market share) of the households that currently rent (or would

be interested in renting) in this town. If market experts believe that a total of 5,000

apartment units will be rented in your entire hometown within the next year, what is the

projected number of units the developer could expect to lease in year 1 if he is able to

capture 20% of the market potential?

A. 1000 units

B. 500 units

C. 250 units

D. 50 units

In the Palm Grove Office Complex example, the project was destined to be an ill-fated

venture from its inception for all of the following reasons EXCEPT:

A. The zoning laws of University City ultimately prevented the project’s developers

from starting the construction process

B. University City was not well-suited for large office space geared toward firms with

greater than 25 employees

C. Palm Grove Office Complex lacked the visual exposure, convenient access, and

parking that its competitors held significant comparative advantages in.

D. The structures were primarily designed as general-purpose office space, which

excluded potential occupants such as laboratories or medical offices.

The risk of bankruptcy tends to travel with the risk of foreclosure since both can result

from financial distress. Known popularly by its section in the Federal Bankruptcy Code,

which of the following types of bankruptcy is a court-supervised workout for a troubled

business?

A. Chapter 1 bankruptcy

B. Chapter 7 bankruptcy

C. Chapter 11 bankruptcy

D. Chapter 13 bankruptcy

Created by Congress to promote an active secondary market for home mortgages,

Fannie Mae and Freddie Mac purchase loans that meet specific underwriting standards

such as loan size, documentation, and payment to income ratio. The loans that Fannie

Mae and Freddie Mac are eligible to purchase are commonly referred to as:

A. government sponsored loans

B. conforming conventional loans

C. nonconforming conventional loans

D. FHA loans

In 1989, Congress took major steps to establish depository institution accountability by

requiring these institutions to hold more capital as they take on riskier assets. Which of

the following Congressional acts imposed these capital standards on depository

institutions?

A. Depository Institutions Deregulation and Monetary Control Act

B. Financial Institutions Reform, Recovery, and Enforcement Act

C. Secure and Fair Enforcement for Mortgage Licensing Act

D. Riegle Community Development and Regulatory Improvement Act

Nonposessory interests (i.e. bundles of real property rights that do not include

possession) include all of the following EXCEPT:

A. leasehold interests

B. easements

C. restrictive covenants

D. liens

Since the issues in many transactions are similar, brokers often use standard preprinted

contract forms. Generally, the best standard form contracts are those prepared and

approved by which of the following parties?

A. Office supply firm

B. Seller

C. Local Board of Realtors

D. Web source of generic legal forms

Nearly half of states in the U.S. use the sale of tax lien certificates to manage defaulted

property taxes. The certificates are auctioned to the public at:

A. the face value of the property taxes due

B. the assessed value of the home

C. a discount from the face value of the property taxes due

D. a premium of the assessed value of the home

Given the following information about a fully amortizing loan, calculate the lender’s

yield (rounded to the nearest tenth of a percent). Loan amount: $166,950, Term: 30

years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 2.

A.7.7%

B. 8.0%

C. 8.2 %

D.10.0 %

In contrast to conventional home loans, the interest-only balloon loan requires the

borrower to pay off the loan with a “balloon” payment equal to the original balance

after:

A. 1-5 years

B. 5-7 years

C. 7-15 years

D. 15-30 years

Three highly similar and competitive income-producing properties within two blocks of

the subject property have sold this month. All three offer essentially the same amenities

and services as the subject property. The sale prices and estimated first-year NOI for

each of the comparable properties are as follows:

Using the information provided, calculate the overall capitalization rate by direct

market extraction assuming each property is equally comparable to the subject.

A. 11.0%

B. 11.2%

C. 11.4%

D. 12.0%

Given the following information, calculate the overall capitalization rate. Sale price:

$950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: $50,000,

and Operating Expenses: $50,000.

A. 15.8%

B. 21.1%

C. 26.3%

D. 36.8%

Once possession and control are conveyed in a lease agreement, the owner must

provide the tenant with uninterrupted use of the property without any interference from

any entity that may threaten to impose upon the tenant’s leasehold interest in the

property. In other words, the tenant is entitled to which of the following?

A. Quiet enjoyment

B. Tenant improvement

C. Concession

D. Expansion option

There are a number of different types of listing contracts that can be used when

marketing a property. Which of the following types of listings requires the broker to be

paid a commission if any other broker, or even the owner, sells the property during the

contract period?

A. Open listing

B. Single listing

C. Exclusive agency listing

D. Exclusive right of sale listing

Real estate is defined as land and its permanent improvements. Which of the following

is an example of an improvement to the land?

A. Fence

B. Building

C. Sewer system

D. Personal property

Within the framework of the bid-rent model, as rents increase with proximity to the

central business district (CBD), the tendency is for development to:

A. spread to the outskirts of the city

B. build upward on lots within the CBD to allow multiple tenants

C. cease completely

D. focus on low-income housing projects.

Given the following information, calculate the debt yield ratio on the following

commercial property. Estimated Net Operating Income in the first year: $250,000, Loan

amount: $2,047,500, Purchase price: $2,730,000

A. 4.8%

B. 12.2%

C. 68.6 %

D. 75.2 %

Distinguishing between the four categories of real estate for federal tax purposes can be

misleading at times. Which of the following categories includes properties that are held

primarily for capital appreciation?

A. Personal residence

B. Dealer property

C. Trade or business property

D. Investment property

It was not until the late 1960’s that land use controls moved to the forefront of public

interest, as the belief that the environment was an endless and costless resource was

replaced with the notion that the world was a closed system with limited space, air,

water, and other resources. Environmentalists coined which of the following terms to

refer to this new point of

view?

A. Smart growth

B. The Silent Spring

C. Spaceship earth

D. Urban sprawl

The recent emergence of discount brokerage services has had a modest effect on the

price of brokerage services. The average commission that a broker could expect to

receive today would most likely range between:

A. 1-2%

B. 3-4%

C. 5-6%

D. 7-10%

The starting point in calculating net operating income is the total annual income the

property would produce assuming 100 percent occupancy and no collection losses. This

is commonly referred to as:

A. effective Gross Income

B. potential Gross Income

C. operating expenses

D. capital expenditures

Real estate brokers serve as intermediaries by bringing buyers and sellers together in

the real estate market. For this service, brokers are paid what is commonly referred to as

A. commission

B. licensing fee

C. recovery fee

D. listing fee

Co-ownership can occur in a variety of ways, with significant variation in how the

bundle of rights is jointly held. All of the following entities are forms of direct

co-ownershipEXCEPT:

A. Tenancy in common

B. Tenancy by the entirety

C. Condominium

D. Partnership