FIN 73613 | Course Paper

Unlock access to all the studying documents.

View Full Document

As of 2011, the single largest asset category in the net worth portfolios of households is:

A. government and corporate bonds

B. stocks and mutual fund shares

C. consumer durable goods

D. housing

Given the following information on a fixed-rate fully amortizing loan, determine the

maximum amount that the lender will be willing to provide to the borrower. Loan Term:

30 years, Monthly Payment: $800, Interest Rate: 6%.

A. $6,707

B. $9,295.15

C. $13,333

D. $133,433

You have just had a tenant sign a lease contract that guarantees you payments of

$100,000 at the end of each year for the next five years. If you wish to determine the

present value of these future cash flows (i.e. the value of this cash flow stream to you

today), you would use which of the following time value of money processes?

A. Compounding

B. Discounting

C. Amortizing

D. Aggregating

Considering the following information, what is the NPV if the borrower refinances the

loan? Expected holding period: 15 years, Current loan balance: $100,000; Current loan

interest: 7%; Current loan mortgage payment: $898.33; Remaining term on current

mortgage: 15 years; New loan interest: 5.5%; New loan mortgage payment: $817.08;

New loan term: 15 years; Cost of refinancing: $$5000. Assume that the opportunity cost

is the interest rate on the new loan (5.5%).

A. -$5,000.00

B. -$56.52

C. $4,943.48

D. $9,943.48

Suppose you have taken out a $200,000 fully-amortizing fixed rate mortgage loan that

has a term of 15 years and an interest rate of 4.25%. In month 2 of the mortgage, how

much of the monthly mortgage payment does the principal repayment portion consist

of?

A. $705.51

B. $708.33

C. $796.22

D. $799.04

In real estate markets, a transaction occurs only when the investment value of the buyer

exceeds the investment value of the seller. The buyer’s investment value is the

________ that he or she would be willing to pay for a particular property, while the

seller’s investment value is the _______ that he or she would be willing to accept.

A. minimum; minimum

B. minimum; maximum

C. maximum; minimum

D. maximum; maximum

Property rights can be divided into two classes, real and personal. Which of the

following is an example of real property?

A. Vehicles

B. Stocks and bonds

C. Patents

D. Commercial building

Given the following information, calculate the going-in capitalization rate for the

specific property. First-year NOI: $18,750, Acquisition price: $150,000, Equity

Investment: 20%.

A. 2.5%

B. 12.5%

C. 15.6%

D. 62.5%

Given the following information, determine the value of having an additional bathroom.

Assume that the comparable properties are similar in all other attributes besides those

listed in the table below.

A. $4,000

B. $6,000

C. $10,000

D. $16,000

Commercial real estate returns are determined in no small part by how well the ongoing

management function is performed. Management decisions can be classified into two

categories: property management and asset management. Which of the following

functions would be considered a primary responsibility of an asset manager?

A. Property acquisitions and dispositions

B. Marketing a property to prospective tenants

C. Maintaining the condition of the property

D. Signing leases

Some tenants who are subject to long-term leases may desire to transfer all of their

tenant rights and obligations to another party. This is commonly referred to as a(n):

A. assignment

B. sublease

C. concession

D. lease option

A commercial real estate loan may take 90 days from the signing of the purchase and

sale contract until loan closing. Therefore, there is the possibility for interest rates to

fluctuate during this period. In some cases, the lender may offer the borrower the

opportunity to “lock in” the interest rate on the loan. To protect against exposure to rate

increases during this period, the borrower is often willing to pay a nonrefundable fee as

part of what is more commonly known as a:

A. Lockout provision

B. Rate lock agreement

C. Floating rate agreement

D. Yield maintenance provision

Suppose a developer is interested in building a new apartment community. Through her

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

in year 1 consists of 100 households. The developer believes that the target market

segment potential will grow by 5% annually over the next five years. If the developer

projects a capture rate of 25% for each of the next five years, but is only to sell 26

apartment units in each of the next five years, in which year will her actual sales first

fail to meet her projected sales numbers?

A. Year 2

B. Year 3

C. Year 4

D. Year 5

For most commercial property types, lease lengths can vary considerably. Therefore,

both parties must tradeoff between the advantages and disadvantages associated with

particular leasing terms. Owners may prefer longer leases for all of the following

reasons EXCEPT:

A. Delay of re-leasing costs

B. Reduction of risk associated with declining interest rates

C. Gain flexibility

D. Stability of future cash flows

Let’s assume that we are about to appraise a house using the cost approach. The home

was originally constructed in the early 1900s and is one of the last of its kind in this

area. The cost of constructing an exact replica of this residence is estimated to be

$350,000. On our trip to the actual property, we notice that this is the only residential

unit located on this particular road. Based on the current usage of adjacent real estate,

we estimate that the property would be worth an additional $25,000 in its highest and

best use. However, due to the dramatic shift in the perceived safety of the

neighborhood, values of any remaining residential properties in the area have fallen by

$20,000. Due to the home’s age, we also notice that there has been a significant amount

of physical deterioration to the building, amounting to an estimate of

$50,000 in lost value. Since the home was built over 100 years ago, the floor plan is

quite obsolete relative to current preferences. This has a detrimental effect on the value

of the property that is estimated to be approximately $15,000. Given this information,

determine the appraised value of the home using the cost approach.

A. $265,000

B. $290,000

C. $350,000

D. $460,000

Land acquisition, development, and construction loans used by developers differ

significantly from the “permanent” mortgages that traditionally are used to finance the

purchase of commercial properties. All of the statements listed below are true regarding

land acquisition, development, and construction loans EXCEPT:

A. Developers can never be held personally liable for such loans

B. These loans have floating interest rates tied to short-term interest rate indices

C. These loans are interest-only loans.

D. These loans can be prepaid at any time without penalty.

When fully amortizing loans call for equal periodic payments over the life of the loan

they are known as:

A. level-payment mortgages

B. adjustable-rate mortgages

C. interest-only mortgages

D. early-payment mortgages

When a party in a contract fails to perform (e.g. breach of contract, nonperformance, or

default) the other party has a variety of remedies. All of the following are remedies that

an aggrieved seller may pursue EXCEPT:

A. Sue for damages.

B. Retain the earnest money deposit as liquidated damages.

C. Agree to rescission of the contract.

D. Sue for specific performance.

The use of financial leverage in purchasing an income-producing property can affect the

amount of cash required at acquisition, the net cash flows from rental operations, the

net cash flows from the eventual sale of the property, and the ultimate return on

invested equity. Assuming the going-in IRR is greater than the effective borrowing cost,

if an investor increases his leverage rate, say from 75% to 80%, we would expect which

of the following to occur?

A. Both NPV and going-in IRR increase

B. NPV decreases, while going-in IRR increases

C. NPV increases, while going-in IRR decreases

D. Both NPV and going-in IRR decrease

Given the following information, calculate the cash down payment required to purchase

the specific property. Purchase Price: $500,000, Loan Amount: 80% of purchase price,

Up-front financing costs: 2.5% of loan amount.

A. $90,000

B. $110,000

C. $136,250

D. $200,000

Tom recently purchased a home in a residential subdivision. While mowing his lawn

and planting new shrubs for the first time since moving in, Tom’s neighbor came

outside to inform him that he was violating one of the subdivision’s rules which

required the use of a specific professional lawn service for all property landscaping

needs. Assuming this requirement can be enforced by the subdivision authority, this

would be an example of a(n):

A. easement

B. restrictive covenant

C. lien

D. estate

If a homeowner in mortgage distress owes more than the value of the home, and is

unable make the loan manageable by refinancing or modifying the mortgage, the next

recourse often is a short sale of the property. All of the following statements are true

regarding a short sale EXCEPT:

A. Legal costs should be lower with a short sale than with foreclosure

B. A short sale usually enables a better sale price and a faster sale than foreclosure

C. A short sale is less damaging to the borrower’s credit than a foreclosure, thereby

enabling the borrower to be eligible for another mortgage loan sooner

D. A short sale relieves the seller of any other outstanding obligations on the home,

such as owner association fees or a second mortgage.

An investor just purchased an office building for $100,000. He knows for certain that he

can sell the building for $110,000 in 5 years. Approximately how much does he need to

charge in annual rent in order to achieve a 15% annual return on the deal (rounded to

the nearest hundred dollars)?

A. $2,500

B. $8,000

C. $13,500

D. $20,500

Six suburban office buildings have been constructed along six consecutive blocks in

Roseland, New Jersey. This is an example of:

A. central place pattern

B. clustering

C. concentric circle

D. multi-nuclei

Certain mortgage loans contain a due-on-sale clause, which gives the lender the right to

terminate the loan at sale of the property. Which of the following types of loans is the

most likely to contain a due-on-sale clause?

A. Federal Housing Administration (FHA) loan

B. Veterans Affairs (VA) loan

C. Conventional home loan

D. An assumable home loan

A developer of a new planned unit development (PUD) has gathered the following

market information for University City. The developer estimates that there will be 1,500

home (all types) sales in University City over the next year. If an analysis of

demographic information has revealed that the core market share for the PUD project

within the community is 14.0%, what is the total market segment potential for this

project?

A. 42 units

B. 105 units

C. 210 units

D. 1290 units

Given the following information, calculate the load factor for this office property. Total

usable area: 20,000 sq. ft., Tenant’s prorated share of common area: 5,000 sq. ft.

A. 0.25

B. 0.80

C. 1.25

D. 4.00

In the state of Florida, for example, homeowners may qualify for a tax exemption in

which up to $50,000 will be deducted from the assessed value of the property before

taxes are calculated as long as the property owner occupies a home as the family’s

principal residence

and has claimed residency within the state. This exemption is better known as the:

A. ad valorem exemption

B. affordable housing exemption

C. growth moratorium

D. homestead exemption

With a multitude of players involved in the development process, it is important to

understand where they participate within the various stages of development. Which of

the following individuals is the least likely to be involved in the design stage of

development?

A. General contractor

B. Landscape architect

C. Civil engineer

D. Land planner

Both parties to a valid and enforceable contract must provide consideration. In a

contract for the sale and purchase of real estate, which of the following depicts the

seller’s

consideration?

A. A meeting of the minds with the buyer.

B. The option to present a counteroffer.

C. The property to be given up.

D. The money or goods that constitute the purchase price.

A contract for sale of real estate usually calls for the seller to provide evidence of title

as a requisite to completing the sale. Today, the predominant medium through which a

seller meets this requirement is by providing:

A. only a title abstract.

B. only an attorney’s opinion of title.

C. only a title insurance commitment.

D. only a seller’s disclosure

In making single-asset real estate investment decisions, the first pass often involves

calculating a series of returns, ratios, and multipliers. Which of the following is often

cited as a limitation associated with this type of analysis?

A. they are difficult to calculate

B. they are complex to understand

C. they fail to incorporate cash flows beyond the first year of the analysis

D. they are rarely used by industry professionals

Single year return measures and ratios can be categorized into three groups:

profitability ratios, multipliers, and financial ratios. All of the following are considered

financial ratios EXCEPT:

A. Capitalization ratio

B. Operating Expense ratio

C. Loan-to-value ratio

D. Debt yield ratio