Finance 30688

Type

Quiz

Book Title

Real Estate Finance & Investments (Real Estate Finance and Investments) 14th Edition

ISBN 13

978-0073377339

March 13, 2017

When discussing time-value-of-money it is necessary to understand some key

terminology. Which of the following terms refers to a fixed amount of money paid or

received at the end of every period (i.e. a series of equal lump sums)?

A. Future value

B. Present value

C. Ordinary annuity

D. Annuity due

According to the law of agency, real estate brokers are required to observe several

duties as they act as an agent for an individual trying to buy or sell a property. Which of

the following duties refers to a broker's obligation to be completely open and honest

with the principal?

A. Disclosure

B. Confidentiality

C. Loyalty

D. Obedience

It may be appropriate for a real estate professional to utilize different approaches for

estimating the market value of a property depending upon the particular property type

and use. Which of the following approaches would be most applicable when

considering the valuation of retail office space (i.e., which approach would receive the

most weight in the valuation process)?

A. Income approach

B. Sales comparison approach

C. Cost approach

D. Investment approach

Given the following information, calculate the taxes due on sale for the following fully

taxable sale. Net Sale Proceeds: $1,500,000, Adjustable Basis: $830,000, Depreciation

Recapture: $150,000, Capital Gain Tax: 15%, Depreciation Recapture tax: 25%.

A. $37,500

B. $78,000

C. $100,500

D. $115,500

Direct investment in private commercial real estate markets is a preferred means of

ownership for the largest institutional market participants. Which of the following types

of institutions rely on stable income from commercial real estate properties to pay out

retirement benefits?

A. Pension funds

B. Life insurance companies

C. Commercial Banks

D. Investment Banks

A city's economic base can be viewed in terms of a multiplier process, in which the

money that is brought in through export activities is then respent within the city. Which

of the following economic activities is the least likely to be considered a high-impact or

high-multiplier economic base activity?

A. Tourism

B. Retirement

C. Computer assembly

D. Specialized medical services

Development involves a complex organization of many moving parts. Which of the

following choices is often viewed as the single greatest cause of project delays and cost

overruns?

A. Obtaining permits

B. Financing

C. Effective communication between developer, architect, and engineer

D. Selecting the architect

With a performance-based management contract, an asset manager's fees are tied

directly to the rate of return earned by investors on the portfolio of managed properties

relative to a benchmark. In private commercial real estate, the choice of benchmarks for

performance is limited in large part to return indices provided by which of the following

organizations?

A. Standard and Poor's

B. National Association of Real Estate Investment Trusts

C. National Council of Real Estate Investment Fiduciaries

D. Wilshire Associates

The purchase price of an income producing property today is $570,000. After analysis

of the expected future cash flows, expected sales price, and expected yield, the investor

determines that the future cash flows have a present value (PV) of $580,000. Taking

into consideration the price of the property today, what is the net present value (NPV)

of this investment opportunity, and should the investor take the deal?

A. $10,000; Yes

B. $10,000; No

C. -$10,000; Yes

D. -$10,000; No

While a sublease and an assignment are two distinct choices for a tenant who wishes to

transfer his rights during the term of a lease, both agreements:

A. transfer all of a tenant's rights to another party

B. transfer only a subset of rights to another party

C. grant another party the right to cancel the original lease before expiration

D. maintain that the original tenant be held liable for fulfilling the original lease unless

otherwise specified

The magnitude of an economic base multiplier depends upon the amount of money that

"leaks" out through expenditures outside of the city limits. The economic multiplier

tends to be higher with each of the following EXCEPT:

A. A higher percentage of local household income is respent within the city.

B. The larger the city is.

C. The less isolated the city is from other cities.

D. The more tourism a city brings in.

Most real estate investment trusts (REITs) are actively managed operating companies

that typically focus their investments either by property type or geographic market.

Which of the following commercial property types represents the largest proportion of

REIT market value?

A. Apartments

B. Office

C. Industrial

D. Retail

A fixture is an object that formerly was personal property but has become real property.

Of the following four rules for determining whether an object has become a fixture,

which is the most dominant (i.e. if there is a conflict, which rule prevails)?

A. Manner of the attachment

B. Character of the article and manner of adaptation

C. Intention of the parties

D. Relation of the parties

Suppose an institution has purchased a $250,000 mortgage loan from the loan originator

and wishes to create a mortgage pass-through security. In doing so, this institution will

generate revenue by charging a servicing fee of 35 basis points. If the monthly

mortgage payment on the loan is $1,250, how much income is passed through to the

investor in the mortgage pass through each month (rounded to the nearest dollar)?

A. $73

B. $375

C. $875

D. $1177

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

A special contract in which the borrower pledges the mortgaged property as security to

the lender is commonly referred to as the:

A. Mortgage (Deed of Trust)

B. Listing Contract

C. Note

D. Assignment of Mortgage

Traditional home mortgage underwriting is said to rest on three elements, the "three

C's." Recent research (e.g., Archer and Smith, 2011) has confirmed that the

underwriting characteristic most strongly associated with default is:

A. Collateral

B. Creditworthiness

C. Capacity

D. Capability

Uncertainty of cash flows can vary significantly across property types. Which of the

following property types is often considered to have the most uncertain expected cash

flows?

A. Multifamily

B. Industrial

C. Office

D. Hospitality

The Federal National Mortgage Association (Fannie Mae) was originally established to

provide a secondary market for FHA-insured and VA-guaranteed loans. All of the

following statements regarding Fannie Mae are true EXCEPT:

A. Fannie Mae lends money directly to homebuyers

B. Fannie Mae was once a private, self-supporting company with publicly traded stock

that has now been placed into conservatorship by the United States government

following the mortgage crisis of 2007-2008.

C. Fannie Mae fully guarantees timely payment of interest and principal to investors.

D. Fannie Mae is authorized to buy both conventional home loans and

government-sponsored residential mortgages.

When fund managers collect contributions from multiple sources and "commingle"

them to purchase properties, this is referred to as the use of commingled real estate

funds. Which of the following institutional investors utilize commingled real estate

funds for approximately one-half of their investments in real estate?

A. Investment banks

B. Life insurance companies

C. Real estate advisory firms

D. Pension funds

Mortgage banks typically will attempt to sell loans as quickly as possible after they are

originated by either issuing mortgage securities or selling the loan to an intermediary

that will subsequently sell the loan in the secondary market. The period between loan

commitment and

loan sale is referred to as the:

A. mortgage pipeline

B. mortgage note

C. mortgage fallout

D. mortgage term

In discounted cash flow (DCF) analysis, the sale price of the property must be estimated

at the end of the expected holding period. The most common method for determining

the terminal value of the property is the:

A. yield capitalization method

B. direct capitalization method

C. repeat-sales approach

D. cost approach

When lenders charge discount points (prepaid interest) on a loan, what impact does this

have on the loan's yield?

A. The yield on the loan will increase.

B. The yield on the loan will decrease.

C. The yield on the loan will be unaffected.

D. The yield on the loan automatically becomes zero.

Considered a fundamental pricing metric in commercial real estate markets, the ratio of

a property's annual net income to its market value is more commonly referred to as a(n):

A. Appreciation rate

B. Capitalization rate

C. Discount rate

D. Internal rate of return

The Real Estate Research Corporation (RERC) regularly surveys a sample of

institutional investors and managers in order to gain insight into the required returns

and risk adjustments used by industry professionals when making real estate

acquisitions. Most of the properties that RERC examines are large, relatively new,

located in major metropolitan areas and fully or substantially leased. These

classifications of properties are commonly referred to as:

A. investment grade properties

B. speculative grade properties

C. net-lease properties

D. industrial properties

Suppose you plan to put a 20% down payment on a house and obtain a mortgage loan

that is less than the size limit on conforming loans ($417,000) to finance the remainder

of the purchase. Based on your understanding of the loan-to-value ratio, what is the

maximum price that you could pay for a home with these restrictions in mind?

A. $333,600

B. $500,400

C. $521,250

D. $2,085,000

Suppose that examination of a pro forma reveals that the fifth year net operating income

(NOI) for an income producing property that you are analyzing is $138,446 (you can

assume that this cash flow occurs at the end of the year). If you estimate the projected

rental growth rate for the property to be 5% per year, determine the projected sale price

of the property at the end of year five if the going-out capitalization rate is 9%.

A. $988,900.00

B. $1,465,037.00

C. $1,538,289.00

D. $1,615,203.00

Recognizing that only recent conveyances alter the status of title, states have

established laws that set limits on how far back a title search must go. These laws are

commonly referred to as:

A. Statute of Frauds

B. recording statutes

C. encroachments

D. marketable title laws

In calculating the net operating income (NOI) of a property, the "above-line" treatment

of capital expenditures implies:

A. capital expenditures are excluded from the calculation of NOI.

B. capital expenditures are included in the calculation of NOI.

C. capital expenditures are set equal to NOI.

D. capital expenditures are divided by NOI.

A property owner has set up a contract in which he agrees to sell a warehouse 5 years

from now to the tenant who currently leases the space. The tenant has agreed to

continue to pay $20,000 in rent at the end of each year, including year five, at which

time he will purchase the building for an additional $1,500,000. Assuming the required

rate of return on a similar investment is 10% (annual), how much is this deal presently

worth to the original owner of the property?

A. $1,007,197.20

B. $1,014,779.29

C. $2,281,452.80

D. $2,293,663.00

The measure of cash flow most relevant to investors in income-producing real estate is

the after-tax cash flow (ATCF) from property operations. Therefore, it is important to

know that the maximum federal income tax rate on individuals as of 2012 is:

A. 25%

B. 30%

C. 33%

D. 35%

When property managers are looking to secure a mix of tenants for which "the whole is

greater than the sum of its parts," or in other words a group of tenants that shares

similar characteristics such that the experience of living together is mutually beneficial,

they are seeking what is referred to as:

A. permanence potential

B. synergism

C. rehabilitation

D. adaptive reuse

As an agent for the buyer or seller, a broker has 6 basic fiduciary responsibilities.

Which of the following definitions best describes the responsibility of "Obedience"?

A. Broker must follow the instructions of the principal to the limits of what is legal and

ethical

B. Broker must keep principal informed of all changes in the financials of the

negotiation

C. Broker must not convey information about principal's financial status or motivations

D. Broker must never subordinate the best interest of the principal to the interests of

others, including himself/herself

In a fixed-term, level-payment reverse mortgage, sometimes called a reverse annuity

mortgage, or RAM, a lender agrees to pay the homeowner a monthly payment, or

annuity, and expects to be repaid from the homeowner's equity when he or she sells the

home or obtains other financing to pay off the RAM. Consider a household that owns a

$150,000 home free

and clear of mortgage debt. The RAM lender agrees to a $100,000 RAM for 10 years at

6 percent. Assume payments are made annually, at the beginning of each year to the

homeowner. Calculate the annual payment on the RAM.

A. $7,157.35

B. $7,586.80

C. $12,817.73

D. $13,586.80