Q&A Hero

Q: Today 1 euro can be purchased for $1.50. This is the a. spot exchange rate. b. forward exchange rate. c. fixed exchange rate. d. financial exchange rate.

Q: Some bankers argue that preferred equity is an inexpensive way to issue permanent capital other say it is a very expensive way to issue debt. Which do you believe is true?

Q: Does it ever make sense to take a negative amortization loan?

Q: The exchange rate is a. the price of one currency relative to gold. b. the value of a currency relative to inflation. c. the change in the value of money over time. d. the price of one currency relative to another.

Q: When the exchange rate changes from 0.9 euros per dollar to 1.0 euros per dollar, then a. the euro has appreciated and the dollar has appreciated. b. the euro has depreciated and the dollar has appreciated. c. the euro has appreciated and the dollar has depreciated. d. the euro has depreciated and the dollar has depreciated.

Q: Cherry Towers is a well leased CBD office building in a major east coast city. It has never had occupancy below 90%, however, leases representing 40% of the rentable space are expiring in five years. Oxy Capital Corp, a private lender, is offering a choice of two loans a three year 70% LTV loan at 4% and a seven year 50% LTV financing at 7%. Both loans are sufficient to pay off your existing financing and feature a 20 year amortization schedule. Which loan do you recommend?

Q: REIT has an offer of $50 million five-year financing at 7% with 25 year amortization on your property. You have three choices for increasing the financing:$60 million five-year financing at 8% with 20 year amortization; add a$10 million preferred equity investment at 14% to the $50 mortgage or add a five-year interest-only $10 million second mortgage at 12% to the $50 million mortgage. Which is best?

Q: An appreciation of a countrys currency a. decreases the relative price of its exports and lowers the relative price of its imports. b. raises the relative price of its exports and raises the relative price of its imports. c. lowers the relative price of its exports and raises the relative price of its imports. d. raises the relative price of its exports and lowers the relative price of its imports.

Q: The Citibank trading desk quotes a buy rate of 1.25 and a sell rate of 2.00 for the dollar/euro exchange rate (S$/). Suppose that traders are continually selling dollars to Citibank, leaving Citibank with a surplus of dollars. How should Citibank adjust its rates to square off its position? a. Lower both buy and sell rates. b. Raise both buy and sell rates. c. Lower the buy rate, but raise the sell rate. d. Raise the buy rate, but lower the sell rate.

Q: Banco de Poco offers three-year mortgage at 5%, a five year mortgage at 6.50% at a 7 year mortgage at 7.5%. What assumption about rates in years four and five would make you choose the five-year over the three year mortgage. What assumptions about rates in the second five years would make you favor the 7- year mortgage over the five year?

Q: Bobbys Bar B Q Shack is a rapidly expanding chain of fast and casual restaurants. The chain currently owns ten locations. Each location costs $5 million to build and generates a stabilized operating profit of $ 1 million per year. The company would like to build 20 more over the next year and assumes its costs will remain the same. Bobby has been offered a $75 million three-year bank line of credit at 10% and a $75 m three year 6% convertible mortgage. The convertible mortgage allows the holder to convert $25 million of principal into a 20% interest in the company. The market values companies like Bobbys at 10 times unit operating profit. Which financing is better?

Q: Assume that the dollar value of a Swiss franc is 0.8600 (dollar per franc), and that U.S. importers start to like Swiss watches more than they did in the past. Assume that the Swiss Central Bank wants to keep the Swiss franc fixed at 0.8600. To intervene, they have to: a. buy up Swiss francs and sell dollars. b. buy up dollars and sell Swiss francs. c. buy up both dollars Swiss francs. d. sell both dollars and Swiss francs.

Q: Grant Industries owns a large warehouse outside of Austin, Texas. The property is currently free and clear of any encumbrances. An investor has offered to purchase the land under the warehouse for $10 m. The investor will charge Grant $75,000 per month rent. At the end of ten years Grant may repurchase the land at $8 million. Assuming Grant exercises its bargain repurchase option, what is Grants effective interest cost?

Q: Assume that the dollar value of a Swiss franc is 0.8600 (dollar per franc), and that U.S. importers start to like Swiss watches more than they did in the past. The Swiss franc would: a. appreciate, as the demand curve of Swiss franc shifts to the right. b. depreciate, as the demand curve of Swiss franc shifts to the right. c. depreciate, as the demand curve of Swiss franc shifts to the left. d. appreciate, as the supply curve of Swiss franc shifts to the right.

Q: (continuation of #4) In the event that the REIT accepts the $50 million loan, a mezz lender has offered a $15 m, 10 year loan at 13% interest only. Is this a better alternative?

Q: Use the following information to answer questions 24-25.Assume that the following exchange rates exist for the U.S. dollar, Japanese Yen and the British Pound. $/Pound$/YenYen/PoundNew York1.600.01-London1.60-140.0Tokyo-0.01140.0If you are an arbitrageur that starts with $1,000 in New York, you will end up with the arbitrage profit of:a. $0b. $142.86c. $446.43d. $875.00

Q: MB REIT owns a shopping center with adjusted NOI of $10 m. Market cap rates for similar properties are 8%. The property currently has a $50 m 7% mortgage that expires in 6 months. The REIT is offered three replacement mortgages $50 million at 6%, $60 million at 7% and $70 m at 8.25%. All of the loans are for ten years and are interest only. MB REIT is not a tax payer. Which loan is best?

Q: If the price of British pounds in terms of U.S. dollars is $1.80 per pound, then the price of U.S. dollars in terms of British pounds is: a. 1.80 per dollar. b. 0.555 per dollar. c. 0.90 per dollar. d. 3.60 per dollar.

Q: (continuation of #1) An institutional investor offers $5 million of preferred equity at an 8% dividend yield. What impact does this have on the original investor groups return on equity?

Q: Suppose that Bank of America quotes you a buy rate of $1.50 per pound and a sell rate of $1.60 per pound. If you sell 1,000 British pounds to Bank of America, Bank of America will have too many British pounds. To square off: a. the bank has to increase both the buy and sell rates. b. the bank has to increase the buy rate but lower the sell rate. c. the bank has to lower the buy rate but increase the sell rate. d. the bank has to lower both the buy and sell rates.

Q: (continuation of #1) The investors in Warren Woods pay taxes at 35%. Assume 20% of value is attributed to land and 27.5 year depreciation. What is the after tax return on equity? What is the maximum distribution that can be paid as a % of equity?

Q: An investor group is considering purchasing Warren Woods, a multifamily property with 200 units each 1,000 sq. feet. Rents are running $2.00 per sq ft per month. Adjusted NOI is 50% of revenues. The property is currently valued at $150,000 per unit. The bank is offering a loan of $20 million at 6% with 25 year amortization. What are the LTV and DSC ratios?

Q: Suppose that Bank of America quotes you a buy rate of $1.50 per pound and a sell rate of $1.60 per pound. How much dollars would you receive, if you sell 1,000 British pounds to Bank of America? a. $100 b. $1,000 c. $1,500 d. $1,600

Q: The pay rate ________ exceeds the interest rate in a negative amortization loan. a) never b) always c) sometimes d) not relevant

Q: Use the graph below to answer questions 17- 20. Figure 1.2 Refer to Figure 1.2. Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro. Then the supply curve shifts to S2. If the European central bank wants to fix the exchange rate at $2.00/euro, they have to: a. buy euro and sell dollar by the amount of Q3 Q1. b. sell euro and buy dollar by the amount of Q3 Q1. c. sell only euro by the amount of Q3 Q1 and leave dollar alone. d. buy only euro by the amount of Q3 Q1 and leave dollar alone.

Q: Common mortgage types include all of the following except: a) Interest-only b) Fully amortizing c) Preferred d) Convertible

Q: If the property ROA is 10% for which Kd is the leverage positive? a) 10% b) 8% c) 12% d) 14%

Q: Which of the following is not a reason to sell an asset in a sale-leaseback transaction? a) because the property owner does not want to use the space b) to transfer depreciation expense to an investor c) as an alternative to refinancing the property d) to provide financing for a new acquisition

Q: Rising income in China triggers an increase demand for U.S. imported goods by Chinese households. This causes ________ Chinese yuan and yuan should_________ against the dollar. a. an increase in the demand for; appreciate b. an increase in the demand for; depreciate c. an increase in the supply of; appreciate d. an increase in the supply of; depreciate

Q: The purpose of a yield maintenance fee is to: a) Protect the lender against prepayment risk b) Protect the lender against rising interest rates c) Maintain the lender's yield on a loan if issuer credit changes d) All of the above

Q: Rising income in the United States triggers an increased demand for imports. This causes: a. an increase in the demand for foreign currency b. decrease in the demand for foreign currency c. an increase in the supply of foreign currency d. a decrease in the supply of foreign currency

Q: Which of the following statements about the impact of adding additional debt are incorrect? I. More tax benefit II. While I <ROAROE increases III. While I > ROAROE increases IV. Distress can result V. Credit spread decreases a) I, II, V b) II, IV c) III, IV d) I, II, IV

Q: Use the following information about the spot exchange rates to answer the questions 18 20. Suppose that the spot exchange rates for British pound quoted in two locations are: Buy 1 pound () Sell 1 pound () Barclays, London $1.55 $1.58 Citi, New York $1.60 $1.63 Suppose that you have 1 million, how much arbitrage profit can you make? a. -30,674.85 b. 12,658.23 c. 31,627.64 d. 51,612.90

Q: Partnership Liquidation (continuing exercise) What is the after tax cash available to the GP and LPs after taking into account the payment of taxes. What is the after-tax return on investment (for ease of calculation, use one year as the holding period.)

Q: Taxation (continuing exercise) What taxes are payable by the GP and the LPs? Assume an income tax rate of 35%, cap gains tax rate of 15% and recapture tax of 25%.

Q: If the French demand for American exports rises, then a. the euro should appreciate relative to the dollar. b. the dollar should depreciate relative to the euro. c. the dollar should appreciate relative to the euro. d. it is not clear whether the euro should appreciate or depreciate relative to the dollar.

Q: Calculation of Income (continuing exercise) The Freeling Tower, a major office building, is held for a year and one day and then sold. The NOI in year one is $2.5m. The original financing is: $ 10.0 m mortgage, interest only 6% $ 5.0 m mezzanine debt, interest only 10% $ 5.0 m equity Assume the allocation to land is 20% of the purchase price and depreciable life is 39 years. What is the partnership income?

Q: You have accessed the following spot rates: U.S. dollar per pound = 1.50 Yen per U.S. dollar = 100.0 What is the exchange rate yen per pound? a. 0.01 yen per pound b. 0.015 yen per pound c. 66.67 yen per pound d. 150 yen per pound

Q: Cash Return on Equity Seaside on Dune Road is a 50 unit garden apartment project on Long Island. The project cost $12.5 million to build and is now subject to a 7 year, 8%, interest only mini-perm loan in the amount of $9 million that has two years to run. The project shows stabilized NOI of $2 million. What is the cash return on equity.(assume no taxes, no cap ex)

Q: Suppose that Citibank buys a large amount of Japanese yen from Toyota and Citibank does not want to continue holding too much yen. How should Citibank adjust its buy rate and sell rate of the yen (yen per dollar) to square off? a. Citibank has to raise both buy and sell rates. b. Citibank has to raise the buy rate, but lower the sell rate. c. Citibank has to lower the buy rate, but raise the sell rate. d. Citibank has to lower both buy and sell rates.

Q: In which of the following would an institutional investor generally earn a preferential return? a) Syndication b) REIT c)..JV d) Corporation

Q: To square off, a. a bank adjusts its buy and sell rates of a currency to receive zero spread. b. a bank increases its buy rate, but decreases its sell rate. c. a bank decreases its buy rate, but increases its sell rate. d. a bank could raise both buy and sell rates or lower both buy and sell rates to return to its desired foreign currency holding position.

Q: Total cash on cash returned (continuing exercise) What before tax return will the GP make on its investment? A) 11% B) 37% C) 49% D) 67%

Q: Assume that Citibank quotes you a buy rate of $1.50 per pound and a sell rate of $1.60 per pound. How much will you receive in dollars, if you sell 1,000 pound to Citibank? a. $625 b. $666.67 c. $1,500 d. $1,600

Q: Proceeds from a sale (continuing exercise) The property is sold at the end of one year and one day for $21 m. Upon sale, original equity is returned pro rata if available. Excess proceeds are split pro rata until each party receives a cumulative return of 12%. The GP is then entitled to a 30% share

Q: Waterfall from Current Income (continuing exercise) In example 3, 20% of the equity was invested by the GP and 80% by the LP. Each year, each party is entitled to a pro rata split of funds available for distribution until a 10% return is achieved. The GP is then entitled to a 30% share.

Q: If the spot exchange rate goes from 0.80 euro per dollar to 0.60 euro per dollar, the dollar has ___________ against the euro by _________ percent. a. appreciated; 25.0 b. appreciated; 33.3 c. depreciated; -25.0 d. depreciated; -33.3

Q: You have obtained the following spot rates:Spot rate per U.S. $June 2010June 2011Japanese yen12080Mexican peso9.2511.75 From the above information, the U.S. dollar has ________ against the Japanese yen and it has ______ against the Mexican peso.a. appreciated; appreciatedb. appreciates; depreciatedc. depreciated; appreciatedd. depreciated; depreciated

Q: Characteristics of Reg D offerings generally include all of the following except: a) limited to accredited investors b) greater than 100 investors c) Less than 35 investors d) exemption from registration

Q: Suppose an exchange rate between Korean won and U.S. dollar is 1,000 Korean won per dollar. A hotel vacation package in Korea with a price of 500,000 Korean won will cost: a. $50 b. $500. c. $1,000. d. $500,000,000

Q: Which characteristics are not shared by both partnerships and corporations: a) limited liability b) business association c) centralized management d) objective to carry on the business and divide the gains

Q: Suppose the dollar price of Thai baht (THB) is $0.025/THB. Thai Airways purchases a $10 million airplane from Boeing. This airplane would cost ___________ Thai baht to Thai Airways. a. 0.25 million b. 2.5 million c. 40 million d. 400 million

Q: At the end of a partnership, capital account balances must be brought to a) zero b) amount of original cash investment c) sum of all cash distributed d) 10%

Q: A trader makes profit by buying a currency at a low price in one market and immediately selling it in another market. This activity is called: a. Speculation b. Arbitrage c. Hedging d. Squaring off

Q: Substantial economic effect does not require a) pro rata allocations b) allocations that are reflected in capital accounts c) liquidations in accord with capital accounts d) restoration of deficit capital accounts

Q: Which of the following are added to capital accounts? a) income and cash invested b) income and cash distributed c) losses and cash distributed d) losses and cash invested

Q: The __________ exchange rate is the price for immediate currency exchange. a. Current b. Forward c. Future d. Spot

Q: If the price of Japanese yen in terms of U.S. dollars is $0.01/yen, then the price of U.S. dollar in terms of Japanese yen is equal to ___________. a. 0.01 yen per dollar b. 10.0 yen per dollar c. 100 yen per dollar d. 110 yen per dollar

Q: The opening balance of a capital account is created by: a) gain on sale b) cash contribution c) cash distribution d) allocation of losses

Q: Which is not an option for a partnership requiring more capital? a) assess limited partners b) assess general partners c) borrow cash d) admit additional partners

Q: Which of the following participants has unlimited financial responsibility for the affairs of a real estate partnership? a) limited partner b) general partner c) syndicator d) property manager

Q: The responsibility for the management of a real estate partnership rests with the: a) limited partner b) general partner c) syndication d) property manager

Q: Required EquityGreentree Park is a 10 building office park outside of Cleveland, Ohio. The property is valued at $100 million. Bankers have proposed a first mortgage with an LTV of 55%. A financial services firm has offered a mezzanine loan to take the property up to a 75% LTV. How much equity will be required from the owners in order to complete the purchase.

Q: Which of the following in not a type of mortgage backed security? a) Ginnie Mae Security b) Balance Sheet Mortgage Loan c) Mortgage pass through bond d) Mortgage backed Bond

Q: Which of the following protects the owner of the senior tranche of a CMBS? I. Overcollateralization II. Prepayment speed III. Underwriting standards IV. Pool diversification a) I,II,III b) I,III,IV c) I,II d) II,III,IV

Q: In the years after the great depression the US government considered it good public policy to support homeownership. Do you believe that this is still an appropriate role for the government?

Q: A commercial property owner has received financing offers for a property acquisition from both conduit and relationship lender. What factors must be considered in choosing the type of lender used?

Q: Which is more important to the value of an investment in mortgage backed securities: a) the structure of the securities or b) the underwriting criteria used to originate the mortgage collateral? Why?

Q: Problems TrancheAmountInterest RateExpected Principal Repayment PeriodA$ 50 m4%2010 to 2016A1$ 20 m5%2016B$ 30 m6%2016R$100NANACollateral PoolTen loans, each with an original principal balance $10 m. All loans are 6.4% 7 year commercial mortgages and were originated on January 1, 2010 with 20 year amortization schedules.Note: All questions refer to the schedule above:How much excess interest is generated by the securitization during the first year? Does this amount rise or fall during the expected seven year life?

Q: Which of the following in not an entity involved in supporting the home mortgage market? a) Ginnie Mae b) Fannie Mae c) Freddie Mac d) Sallie Mae

Q: Which type of lender is typically involved in the securitization process? a) Balance sheet lender b) Relationship lender c) Conduit lender d) Construction lender

Q: Which risk is associated with falling interest rates? a) Call risk b) Environmental Risk c) Extension risk d) Default risk

Q: Which is not a form of credit enhancement? a) Monoline Insurance b) Sequential Pay c) Loan syndication d) Overcollateralization

Q: Which is not a participant in the mortgage securitization process? a) Depositor b) Balance sheet lender c) Special Servicer d) Underwriter

Q: Which is true about REMICs? a) Tax free conduit b) Owner of residual must consolidate c) Can own credit card receivables d) Cannot be organized as a trust

Q: Which tranche takes the greatest risk in CMBS? a) Residual b) Senior c) Subordinated d) PSA

Q: Rising interest rates will have what effect on RMBS securities? a) Extend maturities of IO securities b) Shorten maturities of PO tranches c) Decrease value of IO tranches d) Increase value of PO tranches

Q: Which are true about mortgage backed securities? I. When interest rates ↑ price drop is > than implied by ∆ rate II. When interest rates ↑ price drop is < than implied by ∆ rate. III. When interest rate ↓ price rise is > than implied by ∆ rate IV. When interest rate ↓ price rise is < than implied by ∆ rate a) I, III b) I, IV c) II, III d) II, IV

Q: Which is not a method for estimating collateral pool prepayment? a) Average Market b) Double Declining Balance c) CPR statistics d) PSA model

Q: Which of the following characteristics of the mortgages in a collateral pool stabilize cash flow? a) Limited geography b) Varied interest rates c) Seasoning d) Varied payment patterns