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Real Estate
Q:
The credit rating of a MPTB depends, to a large extent, on:
A. theamount of overcollateralization.
B. thedegree to which government-related securities constitute the excess collateral.
C. theriskiness of the mortgage in the underlying pools.
D. allof the above.
Q:
A mortgage pass-through bond (MPTB) can be described by all of the following except:
A. anMPTB can be viewed as a mortgage-backed bond with the pass-through of principal and prepayment features of a mortgage pass-through security.
B. most MPTBs are based on residential mortgage pools and are generally overcollateralized.
C. anMPTB represents an undivided equity ownership interest in a mortgage pool.
D. allof the above are true.
Q:
The standard PSA prepayment curve referred to in (TF 18-19) is known as a 1 percent PSA.
Q:
The investment rating for mortgage backed Bond depends on all but which of the following?
A. Appraised value and DCR.
B. Interest rates in mortgage pool.
C. Extent of over collateralization.
D. Initial price paid for the security.
Q:
Which of the following is FALSE concerning Mortgage-Backed Bonds (MBB)
A. Issuer retains ownership of mortgages.
B. Maturity is indefinite at issuance.
C. Issued with fixed coupon rates.
D. Usually underwritten by investment banking companies.
Q:
The primary purpose of FHLMC (or Freddie Mac) is to
A. Provide a secondary market for mortgage originators.
B. Provide investors with a guaranteed rate of return.
C. Create competition for Fannie Mae and Ginnie Mae.
D. Provide consumers with more options when deciding on a mortgage loan.
Q:
Which of the following is not a guarantee of GNMA (or Ginnie Mae)?
A. Timely payments of principal and interest.
B. Settling accounts with servicer.
C. All mortgages would be paid off at maturity.
D. Upon default they will repay outstanding loan balance.
Q:
Compared to mortgage pass-though securities (MPTs), MBBs should be priced:
A. toprovide lower yields than MPTs, because of lower prepayment risk.
B. toprovide higher yields than MPTs, because of higher prepayment risks.
C. toprovide the same yield as MPTs, because of equivalent amounts of prepayment risk.
D. none of the above.
Q:
When pricing mortgage pass-through securities, issuers use all of the following methods to include prepayment assumptions except:
A. FHA prepayment experiences.
B. thepool factor technique.
C. thePSA model.
D. constant rates of prepayment.
Q:
When evaluating an investment in mortgage pass-through securities, several important characteristics of the underlying mortgage pool should be considered. Which of the following is NOT an important characteristic?
A. The amount of overcollateralization of the mortgage pool
B. The geographic distribution of the mortgages
C. The amount of seasoned mortgages included in the pool
D. None of the above are important in the evaluation of mortgage pass-through securities
Q:
Which of the following developments assured mortgage investors that they would receive interest and principal payments at little or no risk?
A. The availability of hazard and title insurance
B. The availability of mortgage default insurance and loan guarantees
C. The development of standardized loan underwriting, processing, and servicing
D. All of the above
Q:
Tax losses cannot be allocated to partners in a syndication.
Q:
What guidelines does the IRS follow that impose certain ownership and minimum capital requirements to avoid "dummy" corporations to act as sole corporate general partners.
A. Safe harbor rules
B. Caveat rules
C. Blind pool rules
D. Regulation corporation rules
Q:
How should interest prepayments (including points) for income producing real estate be handled for tax purposes?
A. They should be expensed over the first year
B. They should be amortized over a period of no less than 60 months
C. They should be amortized over the life of the loan
D. They should be capitalized and deducted once the loan is paid off
Q:
Which of the following does NOT have to occur for a partnership allocation to have "substantial economic effect?"
A. An adjustment must be made in the partner's capital account.
B. Liquidation proceeds must be distributed in accordance with capital accounts.
C. Profits and losses must be allocated to different partners in proportion to their equity contribution.
D. Following the distribution of sale proceeds, partners must be liable to the partnership to restore any deficit in their capital account.
Q:
Which of the following terms 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.
Q:
Generally, which of the following is NOT true of 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
Q:
Generally, which of the following is NOT true of 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
Q:
Which of the following is the likely sequence of events in the land development process?
A. Inspect site, perform feasibility analysis, implement marketing program, purchase land and begin construction of improvements
B. Inspect site, purchase land and begin construction of improvements, perform feasibility analysis, implement marketing program
C. Inspect site, perform feasibility analysis, purchase land and begin construction of improvements, implement marketing program
D. Purchase land, perform feasibility analysis, perform preliminary market study, begin construction of improvements, implement marketing program
Q:
Under a tri-party buy-sell agreement, the construction lender will accept funding from the first party willing to repay the construction loan.
Q:
Developers usually holdback about ___ percent of each progress payment.
A. 1
B. 10
C. 25
D. 75
Q:
What term applies to the use of third-party financing that is used between funding advanced by the permanent lender and funds needed to repay the construction loan?
A. Interim Loan
B. Mini-perm financing
C. Gap financing
D. Partial financing
Q:
Which one of the common contingencies is usually included with a permanent financing agreement?
A. Completion date for construction phase.
B. Minimum rent-up requirements
C. Materials used in construction phase
D. Cleanliness of work area
Q:
Which of the following is NOT true concerning 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 cannot usually be financed
Q:
Which of the following is NOT one of the strategies of developers 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
Q:
In the context of a lease, percentage rents generally indicate that:
A. thetenant will pay a proportionate amount of rent for his space in comparison to the total net rentable area.
B. inaddition to a base rent, the lessor will receive a percentage of the tenant's cash flow above some break even point.
C. thetenant will pay a rent that is a certain percentage of the national average.
D. None of the above.
Q:
Interest on a construction loan is usually paid:
A. upfront at the beginning of the loan.
B. periodically over the life of the loan.
C. inquarterly installments over the life of the loan.
D. atthe end of the loan.
Q:
The most common method of distributing the funds provided by a construction loan is:
A. asingle lump sum of money at the closing of the loan.
B. asingle lump sum of money at the end of the construction project to reimburse the developer for the project's expenses and profit.
C. aseries of payments throughout the construction project to reimburse the developer for costs incurred since the previous payment.
D. aseries of payments throughout the construction project to reimburse the developer for anticipated expenses in the upcoming period.
Q:
Mini-perm loans usually refer to:
A. financing at local coffers.
B. financing for lease-up period.
C. financing for construction and all subsequent periods.
D. financing for construction, lease-up, and one or two subsequent years.
Q:
Which of the following is FALSE, concerning operating leases?
A. It is recorded as present value of lease on the balance sheet.
B. It does not have any real effect the balance sheet.
C. It must not extend for at least 75 percent of the asset's life.
D. It is usually the preferred form of accounting for leases.
Q:
Which of the following is true for a corporation with a high credit rating considering owning versus leasing corporate real estate
A. The company should probably use a mortgage.
B. The company can probably issue corporate debt at a more favorable rate
C. The company is probably better off leasing the property from someone with a lower credit rating.
D. The company's credit rating does not affect the own versus lease decision.
Q:
Which of the following could be affected, if a corporation acquired a parcel of real estate?
A. Earnings per share ratio
B. Corporate liquidity
C. Corporate risk
D. All of the above
Q:
The cash flow to be considered in a lease versus own analysis are:
A. purchase price, difference in cash flow from operations over the holding period, cash flow from sale.
B. purchase price, lease payments, cash flow from future sale.
C. cash flow from sale, difference in future operating expenses, cash flow from future sale.
D. cash flow from sale, future lease payments, difference in future operating expenses.
Q:
Equity buildup should always be avoided if possible.
Q:
After the 1986 tax law change, investors that already owned properties had to change the way they were depreciating the properties.
Q:
Which of the following is NOT a benefit to Refinancing?
A. Allows investor to increase financial leverage.
B. It is an alternative to sale of the property.
C. Risk is decreased
D. No taxes have to be paid on funds received by additional borrowing.
Q:
The marginal rate of return can be defined as:
A. the return that results from holding the property for one additional year.
B. the IRR the year the internal rate of return starts to decrease from holding the property.
C. the incremental return over a holding period resulting from renovating a property.
D. the rate of return at which the net present value equals zero.
Q:
Which of the following cash flows would be considered when an investor is trying to decide whether to renovate a property?
A. After-tax operating income before renovation
B. The difference between future operating income if renovated and if not renovated
C. After-tax cash flow from sale the year of renovation
D. The mortgage balance on the property the year before renovation
Q:
An investor is considering renovating a building. Total cost of renovations are expected to be $100,000 of which 75% can be borrowed. Given the after-tax cash flows to the equity investor as showed below, what is the incremental return from renovating? A. 9.75%
B. 10.14%
C. 15.32%
D. 12.67%
Q:
A property with a higher standard deviation and a higher return is preferable to a property with a lower standard deviation and a lower return.
Q:
Examples of real options includes:
A. Valuation of vacant land
B. Valuation of projects with phases of development
C. Valuation of a building that can be renovated
D. All of the above
Q:
Which of the following risks refers to the risk to real estate investors stemming from changes in general economic conditions?
A. Financial risk
B. Liquidity risk
C. Environmental risk
D. Business risk
Q:
When an investor does an investigation when considering acquisition of a property, this is referred to as:
A. Investigation
B. Risk analysis
C. Due diligence
D. Acquisition analysis
Q:
An interest-only loan will provide a higher debt coverage ratio than an amortizing loan with the same interest rate.
Q:
Which of the following is FALSE concerning Negative Amortization:
A. It can result in a decreases in the borrower's equity in the property
B. It usually increases default risk
C. It usually has a lower interest rate than a conventional loan
D. It usually results in a lower DCR.
Q:
Which of the following is FALSE concerning Interest-Only Loans:
A. They usually have a balloon payments
B. They have greater amortization than conventional loans
C. They may result in more cash flow to the investor
D. They may allow for a lower DCR
Q:
Which of the following is NOT a benefits of a Sale Leaseback of land for investors?
A. It is a way of effectively obtaining 100% financing
B. The lease payments are tax deductable
C. Land cannot be depreciated for tax purposes
D. The land value may increase over the holding period.
Q:
Which of the following would typically NOT be used as a basis for a participation loan?
A. Increase in value over the holding period
B. NOI in excess of a base amount
C. Cash Flow after regular Debt Service
D. Potential gross income
Q:
Which of the following types of loan is also called a negative amortization loan?
A. Participation loan
B. Accrual loan
C. Convertible loan
D. Interest-only loan.
Q:
Which of the following is FALSE, concerning DCR:
A. It indicates whether NOI is sufficient to cover mortgage payments
B. It is not of concern to lenders when loan to value ratios are low
C. It is an indication of risk for the lender
D. It is derived from NOI / Mortgage Payment
Q:
Which of the following is NOT true for an expense stop:
A. All operating expenses are covered by the stop
B. The passthrough is based on the tenants' percentage of total leasable area
C. Expenses to be included must be agreed upon and included in the lease
D. The stop is often based on the actual amount of operating expenses at the time the lease is signed
Q:
Which of the following definitions of income includes income from real estate classified as a capital assets?
A. Passive income
B. Active income
C. Portfolio income
D. Passive activity income
Q:
The adjusted basis can defined as:
A. original cost + capital improvements - accumulated depreciation.
B. sales price - mortgage balance - sales costs.
C. sales price - accumulated depreciation.
D. original cost - mortgage balance - sales costs.
Q:
Capitalization rate of newly constructed apartment building will be more than that of relatively old apartment building, which is comparable in all other aspects.
Q:
Return on investment and change in net operating income are essential factors for cost analysis.
Q:
Appraisers use bracketing in order to estimate the upper and lower range of value.
Q:
The market method or direct sales comparison method of estimating site value is not the most reliable method available.
Q:
The equity value can be estimated by subtracting debt service from net operating income and dividing this amount by the equity dividend rate.
Q:
The capitalization rate for a leased fee estate should always be lower than the capitalization rate for a fee simple estate.
Q:
A property is purchased for $350,000. Based on an annual growth rate of 3%, the resale value at the end of year 10 would be $456,671.
Q:
The capitalization rate is equal to the discount rate minus any expected annual growth in income and property value.
Q:
An overall capitalization rate can be calculated by dividing the net operating income by the property value.
Q:
A gross income multiplier can be calculated by dividing the gross income by the sales price.
Q:
A building has 12 foot ceilings that cause the electric bill to be $1,200 higher per year. Depreciation caused by the ceilings can be estimated by calculating the present value of the $1,200 per year over the remaining economic life of building.
Q:
Economic obsolescence is the loss of value caused by inefficient layout of technological changes.
Q:
In the cost approach to value, land value can be estimated by comparing sales of vacant land that are similar to the subject land.
Q:
When conducting an appraisal, only one of three approaches should be selected to determine the property value.
Q:
Which lease has the lowest effective rent? A. A Above.
B. B Above.
C. C Above.
D. D Above.
Q:
Which is not normally considered when conducting an appraisal using the cost approach?
A. Functional obsolescence
B. Effective age
C. Capitalization rate
D. Replacement cost
Q:
Capitalization rates will differ from yield rates when the income is expected to __________ over time.A. Stay the sameB. IncreaseC. DecreaseD. Both B and C.
Q:
Which of the following is true concerning capitalization rates?
A. It is an IRR.
B. It explicitly considers projected future income and changes in property value over time
C. It expresses relationships between income and property value at a specific point in time
D. It is the rate of return that investors expect to earn on all capital invested
Q:
Total possible income less any vacancy is __________.
A. EGI
B. PGI
C. NOI
D. GIM
Q:
The discount rate is a rate that a typical investor would normally require as a(n) __________ return over investment holding period.
A. Maximum
B. Risk free
C. Expected
D. Historical
Q:
A property is leased for $24,000 per year although market rents are currently $27,500 per year and are expected to increase by 2% per year. The property is expected to be sold at the end of year 10 based on a 10% terminal cap rate applied to the eleventh year NOI. The current lease on the property will expire at the end of year 10 so the property can be leased in the eleventh year at market rates. What is the value of the leased fee estate based on an 11.5% discount rate?
A. $362,489
B. $298,325
C. $251,298
D. $271,486
Q:
A property produces a first-year net operating income of $24,000. Because of the long economic life of the building, the income is considered as a perpetuity that will grow by 2.5% per year. Using a discount rate of 9.5%, estimate that property value.
A. $276,968
B. $252,632
C. $200,000
D. $342,857
Q:
A property is sold for $200,000. Typical financing terms are an 85% loan with a 10% interest rate over 15 years. If the before-tax cash flow is $2,000, what is the overall capitalization rate?
A. 10.96%
B. 11.96%
C. 19.13%
D. 9.96%
Q:
Which of the following expenses would NOT be included in an operating statement used to calculated net operating income in the income approach to value?
A. Reserves for replacement
B. Maintenance
C. Real estate taxes
D. Capital additions
Q:
Given the following sales adjustment grid, what adjustment would be made for size? A. $20 psf.
B. $40 psf.
C. $50 psf.
D. $35 psf.
Q:
A comparable property has a feature that is superior to the subject property. What adjustment would be made in the sales comparison approach to value?
A. Value of the feature would be subtracted from the sales price of the comparable property
B. Value of the feature would be added to the sales price of the comparable property
C. Value of the feature would be subtracted from the value of the subject property
D. Value of the feature would be added to the value of the subject property
Q:
Which of the following choices represents the main categories of depreciation?
A. Physical, external, functional
B. Physical, economic, locational
C. External, structural, financial
D. Economic, physical, external