In order to calculate the APR for an ARM, you must,
(A) Only use the first year’s given interest rate
(B) Estimate interest rates over the life of the loan
(C) Assume the worst case scenario and use interest rates at their highest possible point
over the life of the loan
(D) Use only the first five year’s interest rates because they can easily be estimated and
most people only own a property for five years
Which of the following BEST defines the term “real estate syndication?”
(A) A group of investors who have combined their financial resources with the expertise
of a real estate professional to carry out a real estate project
(B) An organization that acts as a single legal entity and is held separate from the
individual investors
(C) An organizational form of real estate ownership in which income and expenses are
passed through to individuals
(D) A group of investors who have combined their financial resources to provide debt
funding for a real estate project
Using only the information in the table above, what would the IRR be for an investment
that cost $500 in period 0 and was sold for $750 in period 5?
(a) Between 6% and 7%
(b) Between 7% and 8%
(c) Between 8% and 9%
(d) Between 9% and 10%
Net sale proceeds less adjusted basis of the property determines which of the following?
(A) After-tax net present value of the property
(B) Depreciation allowance for the property
(C) Before-tax net present value of the property
(D) Capital gains or losses
If the returns of two securities are compared over time and there appears to be no
relationship between their movements, what is the likely value of their coefficient of
correlation?
(A) +1
(B) -1
(C) 0
(D) +∞ (infinity)
The FRC Property Index can be characterized by each of the following EXCEPT:
(A) The index includes only properties with no outstanding mortgage debt
(B) The information used in compiling the index is voluntarily contributed by property
owners
(C) The index reflects payments to both property managers and portfolio asset
managers
(D) All of the above are true
Consider the information in the table above. What is the marginal rate of return for
keeping the property one additional year?
(a) 16.4%
(b) 20.0%
(c) $50,000
(d) $277,500
What document usually summarizes the sources, disbursements, charges and credits
associated with a real estate closing?
(A) The purchase contract
(B) The deed of trust
(C) The listing agreement
(D) The settlement statement
Sharing cash flow in a joint venture in proportion to the capital contribution is referred
to as:
(A) Pari passu
(B) Equal sharing
(C) Preferred return
(D) Equity sharing
Because its payment stream looks like a staircase, which loan is sometimes referred to
as ‘stepped-up” financing due to prearranged payment increases?
(A) CAM
(B) CPM
(C) GPM
(D) ARM
Which of the following closing costs do not increase the lender’s effective loan yield?
(A) Discount points
(B) Prepayment penalties
(C) Title insurance charges
(D) Origination fees
Generally, which of the following is FALSE regarding an option contract?
(A) An option contract allows the developer to perform a preliminary market study and
feasibility analysis
(B) If the developer decides to purchase a property, the price of an option is applied
towards the price of the property
(C) If the developer decides not to purchase the property, the landowner will refund any
money paid for the option
(D) An option contract provides the developer with the assurance that a property will
not be sold over the course of the option period
Which of the following is FALSE regarding a construction loan?
(A) It usually has a lower rate than does permanent financing
(B) It is also known as interim loan
(C) Hard costs can usually be financed
(D) The entire land cost can not usually be financed
A 1,500 square foot office space is leased at $12.00 square foot. The space is vacant one
month out of the year. Office expenses are $6.50 per square foot and an expense stop is
set at $6.00 per square foot. What is the annual net operating income?
(A) $7,500
(B) $6,750
(C) $15,750
(D) $8,250
Which of the following is the usual progression for a real estate development project?
(A) Land acquisition, completion, management, sale, construction
(B) Land acquisition, construction, completion, management, sale
(C) Land acquisition, construction, completion, sale, management
(D) Land acquisition, management, construction, completion, sale
Fund flows that occur within a quarterly reporting period are referred to as
_______________ cash flows. (B)
a. inter-period
b. intra-period
c. regular
d. irregular
Which type of fund structure would investment managersbelikely to use in order to
raise a specific amount of capital over a specific period of time?
a. open-end fund
b. closed-end fund
c. finite fund
d. liquidation fund
The supply of space is:
(A) Inelastic in both the short run and the long run
(B) Elastic in both the short run and the long run
(C) Relatively inelastic in the short run, and highly elastic in the long run
(D) Relatively elastic in the short run, and highly inelastic in the long run
Generally, which of the following is FALSE regarding interest rate risk management
techniques?
(A) Borrowers can protect themselves from upward movements in interest rates by
using interest rate caps
(B) Borrowers can protect themselves from upward movements in interest rates by
using interest rate futures contracts
(C) Borrowers can benefit from downward movements in interest rates by using interest
rate caps
(D) Borrowers can benefit from downward movements in interest rates by using interest
rate futures contracts
One would see the greatest amount of diversification from two securities that are:
(A) Positively correlated
(B) Negatively correlated
(C) Not correlated
(D) Perfectly correlated
An investor is considering refinancing a property. The current mortgage has an interest
rate of 8.75% and a mortgage balance equal to 45% of the property value due to
amortization of the loan and some appreciation in value. However, the investor would
like to refinance at an amount equal to 75% of the property value. He has found out that
the property can be refinanced at a 75% loan-to-value ratio for 9.5% interest over 15
years. What can be said about the incremental cost of refinancing?
(A) It will be higher than 9.5%
(B) It will be less than 9.5%
(C) It will be equal to 9.5%
(D) Can”t tell without additional information
A partnership agreement provides that, at sale, cash proceeds are distributed first to Mr.
Smith in an amount equal to his original investment less any cash distributions
previously received, then split 50-50 between Mr. Smith and Ms. Jones. Assume that
the cash flows from sale are $1million. How much would Mr. Smith receive if his initial
investment was $400,000 and he previously received $25,000 in distributions?
(a) $312,500
(b) $500,000
(c) $375,000
(d) $487,500
(e) $687,500
A building owner charges net rent of $20 in the first year, $21 in the second year, and
$22 in the third year, but is providing six months of free rent in the first year as a
concession. Using a 10percent discount rate, what is the effective rent over the three
years?
(a) $17.28
(b) $20.00
(c) $20.94
(d) $21.00
(e) $21.73
A jumbo loan:
(a) Is another term for an adjustable-rate mortgage loan
(b) Meets loan limits of loans that Fannie Mae and Freddie Mac can buy
(c) Tends to have a higher interest rate than conforming loans
(d) Has lower LTV requirements than conforming loans
Which of the following factors would NOT be considered when an investor is trying to
decide whether to hold or sell a property at the end of year five?
(A) After-tax operating income in year five
(B) After-tax cash flow from the sale in year five
(C) After-tax cash flow from sale in the future
(D) After-tax operating income after year five
The renewal probability is assumed to be 60% for a particular lease with 12 months
vacant if the lease is not renewed. The expected vacancy at the end of the lease is:
(A) 4.8 months
(B) 7.2 months
(C) 9.0 months
(D) 12.0 months
Which of the following could be affected if a corporation acquires a parcel of real
estate?
(A) Earnings per share ratio
(B) Corporate liquidity
(C) Corporate risk
(D) All of the above
The pass-through rate is the coupon rate of interest promised by the issuer of a
pass-through security to the investor. In most instances, the pass-through rate is:
(A) Equal to the average rate of interest on all mortgages in the underlying pool
(B) Lower than the lowest rate of interest on any mortgage in the underlying mortgage
pool
(C) Higher than the highest rate of interest on any mortgage in the underlying mortgage
pool
(D) None of the above
A loan in which the lender has an option to purchase an equity interest in a property is
known as a(n):
(A) Participation loan
(B) Accrual loan
(C) Convertible loan
(D) Percentage loan
Consider the figure above. The dotted (vertical) line denotes the:
(a) Incremental rate of return on additional borrowed funds
(b) Marginal rate of return
(c) Optimal holding period
(d) Optimal yield
Which of the following is NOT one of the developer strategies mentioned in this
chapter?
(A) To sell and lease back the land
(B) Owning and managing after sale
(C) Sell after lease-up phase
(D) Develop for lease in master-planned development
Over the life of the loan, which of the following loans would continually have a lower
principal balance given each loan had the same term, principal amount, and average
interest rate?
(A) CAM
(B) CPM
(C) GPM
(D) Cannot be determined with this information