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Real Estate
Q:
On January 1st, an investor purchases security A for $105. Over the next four months, dividends totaling $15 were paid on security A. On March 31st, security A was sold for $120. What is the holding period return for security A?
A) 0.0%
B) 14.3%
C) 25.0%
D) 28.6%
Q:
The NCREIF 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 contributed by members of the NCREIF
C) The index reflects payments to both property managers and portfolio asset managers
D) All of the above are true
Q:
The data sources used to produce investment returns on investment properties include the:
A) National Association of Real Estate Professionals (NAREP)
B) National Association of Real Estate Investment Trusts (NAREIT)
C) National Board of Realtors (NBR)
D) All of the above
Q:
Why does including REITs in a portfolio containing S&P 500 securities produce diversification benefits?
A) Real estate investment returns are highly correlated with returns for stocks
B) Real estate investment returns are not highly correlated with returns for stocks
C) Real estate investment returns are not subject to federal income taxes
D) Real estate investment returns do not change much from year to year
Q:
What statistical concept do many portfolio managers use to represent risk when considering investment performance?
A) The standard deviation of returns
B) The difference, or "spread," between the highest value over the holding period and the lowest value over the holding period
C) The geometric mean return
D) The coefficient of variation
Q:
The holding period return and geometric mean return calculations will yield the same result for holding periods longer than two years.
Q:
The sources of data for real estate performance evaluation are security prices for REIT shares and the value of individual properties that are owned by pension plan sponsors.
Q:
In comparison to investment portfolios comprised entirely of corporate stocks and bonds, portfolios which include some form of real estate investment tend to offer higher returns for each level of risk.
Q:
If two securities have the same positive mean returns and they are perfectly, negatively correlated, an investor in such securities will earn a positive return with zero risk.
Q:
When comparing investment alternatives, the standard deviation is deemed to be a measure of risk.
Q:
When used to evaluate the performance of an investment, the geometric mean is considered to be superior to the arithmetic mean.
Q:
An investor in a mortgage REIT is basically buying equity shares of an entity whose assets are mainly mortgages.
Q:
Both levered and unlevered properties are included in the NCREIF Property Index.
Q:
The NCREIF Property Index includes property value increases or decreases only when properties are sold since the sale price is the only true measure of market value.
Q:
Much like the securities markets, there is a large, centralized collection of real estate transactions and operating income data.
Q:
The NCREIF index measures the investment performance of real estate by using actual sale prices.
Q:
It is difficult to compare the investment performance of real estate with stocks and bonds because when investment properties do sell, the sale price is generally not publicly available.
Q:
A REIT with 100 shares outstanding earns $1,000 in rent and incurs operating expenses of $400. In addition, the REIT owns property with an historic cost of $6,000 and depreciates it over a 15 year period using straight-line depreciation. At the very least, what dividend payment must it make to maintain its tax exempt status?
A) $1.80/share
B) $2.00/share
C) $3.60/share
D) $5.40/share
Q:
A REIT with 100 shares outstanding earns $1,000 in rent and incurs operating expenses of $400. In addition, the REIT owns property with an historic cost of $6,000 and depreciates it over a 15 year period using straight-line depreciation. What are the funds from operations per share and the earnings per share for this REIT?
A) $4 and $3, respectively
B) $4 and $2, respectively
C) $6 and $2, respectively
D) $6 and $3, respectively
Q:
Hybrid REITs, which are no longer tracked by NAREIT, are comprised of what primary classifications of REITs?
A) UPREITs, mortgage
B) Mortgage, equity, retail
C) Mortgage, equity
D) Healthcare, retail, office
Q:
Which of the following is NOT a current type of REIT?
A) Mortgage trust
B) Equity trust
C) Hybrid trust
D) Neither Mortgage trust nor Hybrid trust
Q:
A REIT has an NOI of $15 per share and currently pays a dividend of $10 per share. The dividend is projected to increase by 4 percent by next year and continue to increase by 4 percent per year thereafter. Assuming that the blended cap rate is 9.75 percent and the required rate of return is 10.5 percent, what would the net asset value (NAV) of the REIT be?
A) $60.15
B) $71.89
C) $153.85
D) $160.00
Q:
A REIT has an NOI of $15 per share and currently pays a dividend of $10 per share. The dividend is projected to increase by 4 percent by next year and continue to increase by 4 percent per year thereafter. Assuming that the blended cap rate is 9.75 percent and the required rate of return is 10.5 percent, what value would the Gordon Dividend Discount Model provide?
A) $60.15
B) $71.89
C) $153.85
D) $160.00
Q:
Which of the following regarding private (unlisted) REITs is TRUE?
A) Unlisted REITs are less expensive than listed REITs
B) Unlisted REITs are less liquid than listed REITS
C) Unlisted REITs are more subject to short-term market price volatility than listed REITS
D) "List or liquidate" provisions in unlisted REITs make such REITs less risky than listed REITS
Q:
The most common type of REITs in today's market are:
A) Equity trusts
B) Mortgage trusts
C) Hybrid trusts
D) Partnership trusts
Q:
Consider the financial statements for a REIT, given above. Price multiples for comparable REITs are about 10 times current funds from operation (FFO). What price does this suggest for the REIT's shares if 1,000,000 shares are issued?
A) $4.52 per share
B) $45.20 per share
C) $8.92 per share
D) $89.20 per share
Q:
A blended capitalization rate is an average of the capitalization rates that would be used for the individual properties in a portfolio if each was being valued separately.
Q:
Real estate assets, cash, and government securities must represent at least 75% of REIT assets.
Q:
A portion of a REIT's dividend may be a non-taxable return of capital.
Q:
REITs can sometimes capitalize rather than lease certain expenditures to increase FFO.
Q:
The difference between EPS (earnings per share) and FFO (funds from operations) is the interest deduction.
Q:
REITs are required to pay out 90 percent of their earnings as dividends.
Q:
The U.S. is the only country that allows REITs (or similar investments).
Q:
A mortgage REIT is a REIT that primarily invests in mortgages rather than equity ownership.
Q:
Funds from operation (FFO), is calculated by adding back depreciation and amortization and other non-cash deductions to earnings.
Q:
At least 95 percent of the value of a REIT's assets must consist of real estate assets, cash, and government securities.
Q:
An arrangement in which a REIT collects a stream of rents from a building owner, then makes a lower, and sometimes fixed, payment to the landowner:
A) Fixed investment
B) REIT spreading
C) Spread investing
D) Renewal option
Q:
Which of the following represents the space that is currently being rented to paying tenants?
A) Leased space
B) Occupied space
C) Ground space
D) REIT space
Q:
The growth of the REIT industry in the early 1970s was mainly attributed to which of the following?
A) Mortgage trust loans were less regulated than bank loans
B) Increased interest rates
C) Declined performance of other investments
D) Increased value of real property throughout the country
Q:
Recovery of capital (ROC) results in:
A) An increase in the dividend available to the investor
B) An increase in the value of the stock
C) A reduction in the cost basis of acquired stock
D) A reduction in losses on the stock
Q:
REIT dividends are considered ________ income and thus do not qualify as passive income to offset passive losses.
A) Portfolio
B) Operating
C) Trading
D) Outside professional
Q:
The difference between EPS (earnings per share) and FFO (funds from operations) is:
A) Irrelevant
B) Determined by growth of the company
C) Due to depreciation and amortization
D) Due to the number of shares outstanding
Q:
Once an entity has been terminated as a REIT, the entity cannot make a new election to be taxed as a REIT until ________ years after the termination.
A) 2
B) 3
C) 4
D) 5
Q:
The funds from operations (FFO) for a REIT is roughly equal to:
A) NOI less interest deductions
B) Earnings before tax plus noncash expenses
C) NOI plus interest deductions
D) Earnings per share plus capital gains
Q:
Which of the following is likely to occur upon the sale of a REIT-owned property?
A) If a capital gain is realized, the REIT can retain the gain for future investment and be taxed at the appropriate corporate capital gains tax rate
B) If a capital gain is realized, the REIT can retain the gain for future investment and be taxed at the shareholder's capital gains tax rate
C) If a capital gain is realized, the REIT can distribute the gain as a dividend to shareholders who will realize it as dividend income for individual tax reporting purposes
D) If a capital loss is realized, the loss can be passed through to individual investors
Q:
Which of the following REIT types is NOT likely to own real property?
A) Hybrid REIT
B) Mortgage REIT
C) Equity REIT
D) All of the above
Q:
Which of the following REIT types is organized to acquire the specific property or properties described in its prospectus?
A) A property trust
B) A mixed trust
C) A purchasing trust
D) An exchange trust
Q:
Which of the following is NOT a requirement of REITs?
A) A REIT must have at least 100 stockholders
B) Not more than 50% of a REIT's shares can be owned by five or fewer shareholders
C) At least 90% of a REIT's income must be distributed to shareholders
D) All of the above are REIT requirements
Q:
An investor pays $63.00 per share for stock in a given REIT. The REIT declares a dividend of $4.00 per share and has an EPS of $2.37. Considering the recovery of capital (ROC), what is the new cost basis of the stock acquired by the investor?
A) $60.63
B) $61.37
C) $63.00
D) $64.63
Q:
A tranche that has a coupon interest rate that adjusts in the opposite direction to its index is referred to as:
A) Reverse floater tranche
B) Inverse floater tranche
C) Upside-down floater tranche
D) Backwards floater tranche
Q:
Class A investors are sometimes repaid with an accelerated pattern of cash flows and are sometimes referred to as:
A) Accelerated tranches
B) Quick pay tranches
C) Tranche residuals
D) Fast pay tranches
Q:
These items are hybrid securities that contain elements of mortgage-backed bonds and mortgage pass-throughs:
A) MPTBs
B) CDOs
C) CMOs
D) Tranches
Q:
Which of the following does NOT increase the noncredit risks of CDOs?
A) Collateral management risk
B) Certainty in average life of CDO tranches
C) Higher correlation and liquidity
D) None of the above
Q:
Convexity is a gauge for which of the following?
A) Profitability
B) Return
C) Sensitivity
D) Duration
Q:
Which of the following is FALSE regarding a planned amortization class (PAC) tranche?
A) It has the greatest degree of cash flow certainty
B) Variable payments are received
C) Payments are received over predetermined period of time
D) Payments are received under a range of prepayment scenarios
Q:
The total interest collected from the pool will be ________ if prepayment accelerates; therefore, the dollar spread between interest inflow and outflow becomes ________.
A) Lower, smaller
B) Lower, wider
C) Higher, smaller
D) Higher, wider
Q:
A calamity call, which allows the issuer to recall all securities for a specified time, can be used in each of the following situations EXCEPT when:
A) Investors want to cash out their positions
B) Interest rates decline sharply
C) Prepayments decline sharply
D) Reinvestment rates are below what was promised to investors
Q:
The residual position in the CMO offering is considered which kind of position?
A) Primary
B) Equity
C) Interest
D) Debt
Q:
Duration is defined as:
A) A measure of the extent to which different investments expose an investor to interest rate risk
B) A measure of the weighted-average time required before all principal and interest is received on an investment
C) A measure that takes into account both the size of cash flows and the timing of their receipt
D) All of the above
Q:
REMICs were created in order to avoid taxes:
A) Entirely
B) At the investor level
C) At the entity level
D) No taxes can be avoided.
Q:
Which of the following is NOT characteristic of commercial-backed mortgage securities?
A) The underlying mortgage pool represents a variety of different property types (retail, multifamily, etc.) and a specific geographical area
B) The underlying mortgages have usually been outstanding for several years
C) One of the primary issuers of such securities are insurance companies
D) In general, the underlying mortgage pool for such securities contain fewer mortgages than are included in residential-backed mortgage pools
Q:
Which of the following investments in NOT a debt obligation of the issuer?
A) CMOs
B) MBBs
C) MPTs
D) MPTBs
Q:
For which of the following investments does the issuer bear all of the prepayment risk?
A) CMOs
B) MBBs
C) MPTs
D) MPTBs
Q:
For which of the following investments is the exact date of maturity known?
A) CMOs
B) MBBs
C) MPTs
D) MPTBs
Q:
Which of the following is NOT a CMO security type?
A) A repeat floater
B) A Z tranche
C) An inverse floater
D) An IO tranche
Q:
In comparison to other mortgage-backed securities, the unique characteristic of CMOs is that:
A) CMO issuers do not retain ownership of the underlying mortgage pool
B) CMOs are issued in multiple security classes
C) The CMO mortgage pool is not overcollateralized
D) CMOs are a pay-through in which all amortization and prepayments flow through to investors
Q:
The credit rating of an MPTB depends largely on the:
A) Amount of overcollateralization
B) Degree to which government-related securities constitute the excess collateral
C) Riskiness of the mortgage in the underlying pools
D) All of the above
Q:
Which of the following statements regarding mortgage pass-through bonds (MPTBs) is FALSE?
A) MPTBs can be viewed as mortgage-backed bonds 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) MPTBs represent an undivided equity ownership interest in a mortgage pool
D) All of the above are false.
Q:
The main purpose of the Term Asset-Backed Securities Loan Facility (TALF) is to:
A) Buy mortgage backed securities owned by Freddie Mac, Fannie Mae, and Ginnie Mae
B) Issue CDOs and use the proceeds to fund infrastructure projects to stimulate the economy
C) Regulate hedge funds to reduce investments in risky assets
D) Use residential loans as collateral to purchase U.S. Treasuries as a way to reduce interest rates
Q:
Which of the following statements regarding subprime mortgages is TRUE?
A) Subprime mortgages are not Ginnie Mae guaranteed, so CMO investors are exposed to default risk
B) Subprime mortgages are not Ginnie Mae guaranteed, so securities backed by subprime mortgages cannot be issued
C) CMOs backed by subprime mortgages cannot be used as collateral for CDOs
D) Due to diversification, securities backed by subprime loans are of no more risk than those back by prime loans
Q:
A mortgage company is issuing a CMO with three tranches, with the principal and coupon rate given in the table below. When issued, the weighted average coupon on the CMO will be: Tranche
Principal
Coupon Rate A
$
40,000,000
9.25
% B 30,000,000
10.00
% Z 30,000,000
11.00
% A) 9.25%
B) 10.00%
C) 10.08%
D) 11.00%
Q:
What is the primary distinction between mortgage-related securities backed by residential mortgages and those backed by commercial mortgages?
A) Default is the key risk with residential mortgages; prepayment is the key risk with commercial mortgages
B) Interest rate risk is the key risk with residential mortgages; prepayment is the key risk with commercial mortgages
C) Prepayment is the key risk with residential mortgages; default is the key risk with commercial mortgages
D) Prepayment is the key risk with residential mortgages; interest rate risk is the key risk with commercial mortgages
Q:
Subprime mortgage-backed securities generally include FHA-insured or VA-guaranteed mortgages, along with conventional mortgages.
Q:
In CDOs both equity and debt holders prefer riskier, higher-yielding collateral to collect excess spreads.
Q:
CDO managers raises capital through the issuance of rated CDO debt and equity to purchase an undiversified pool of credit instruments.
Q:
CDOs often include "B" notes, mezzanine debt and preferred equity as investments.
Q:
In CMO terminology, planned amortization classes (PACs) are also known as companion tranches.
Q:
Cash flows remaining after all CMO tranches have been paid off are referred to as REMICs.
Q:
From the issuer's perspective, the use of MBBs and MPTBs should be viewed as a method of debt financing.
Q:
If a premium is paid on a CMO issue (at the time of issue), yields will increase as prepayment rates accelerate.