Q&A Hero

Q: There are a set of restrictive conditions that REITs must satisfy on an ongoing basis in order to maintain their special tax status. All of the following statements regarding the main restrictions are true EXCEPT: A. At least 100 investors must own a REITs shares B. No five investors can own more than 50 percent of a REITs shares C. At least 75 percent of the value of a REITs assets must consist of real estate assets D. A REIT must distribute at least 75% of its taxable income to shareholders in the form of dividends.

Q: In contrast to public markets, private markets are characterized by individually negotiated transactions that take place without the aid of a centralized market. Therefore, private markets will generally have: A. High transaction costs and high liquidity B. High transaction costs and low liquidity C. Low transaction costs and high liquidity D. Low transaction costs and low liquidity

Q: The $8.8 trillion total market value of commercial real estate can be broken into four quadrants. Which of the following sectors of the commercial real estate market currently accounts for the largest proportion of market value? A. Public equity B. Privately held equity C. Publicly traded mortgage debt D. Privately held mortgage debt

Q: A commercial real estate loan may take 90 days from the signing of the purchase and sale contract until loan closing. Therefore, there is the possibility for interest rates to fluctuate during this period. In some cases, the lender may offer the borrower the opportunity to lock in the interest rate on the loan. To protect against exposure to rate increases during this period, the borrower is often willing to pay a nonrefundable fee as part of what is more commonly known as a: A. Lockout provision B. Rate lock agreement C. Floating rate agreement D. Yield maintenance provision Ans: B 23 The use of a mezzanine loan in the purchase of a commercial property has all of the following impacts on the borrower EXCEPT: A. Allows the borrower to increase their financial leverage in the purchase of the property B. Increases the borrowers expected first year return on equity C. Mitigates the risk of financing for the borrower D. Requires the borrower to pledge an equity interest in their company (e.g., LLC) as collateral for the loan rather than pledging the property. Ans: C

Q: Assume you have taken out a balloon mortgage loan for $2,500,000 to finance the purchase of a commercial property. The loan has a term of 5 years, but amortizes over 25 years. Calculate the balloon payment at maturity (Year 5) if the interest rate on this loan is 4.5%. A. $5,637.99 B. $13, 895.82 C. $2,196,447.59 D. $2,495,479.19

Q: Suppose you are considering the purchase of an apartment building that has 12 units that can be rented out at $1,050 per month. You have estimated operating expenses and expected vacancy and collection losses for the first year to be $35,700 and $30,240, respectively. You also have estimated that you will be able to generate an additional $3,840 in the first year from garage rentals on the property. If the expected purchase price of the property is $1,100,000 and you are planning on making a 10% down payment, calculate the debt yield ratio. A. 8.10% B. 8.61% C. 9.00% D. 12.05%

Q: Given the following information, calculate the debt yield ratio on the following commercial property. Estimated Net Operating Income in the first year: $2,500,000, Debt service in the first year: $960,000, Loan amount: $20,000,000, Purchase price: $27,300,000 A. 4.8% B. 12.5% C. 68.6 % D. 75.2 %

Q: Given the following information, calculate the loan-to-value ratio of this commercial loan. Estimated net operating income in the first year: $150,000, Debt service in the first year: $100,000, Loan amount: $1,000,000, Purchase price: $1,300,000 A. 0.08 B. 0.77 C. 1.30 D. 1.75

Q: Given the following information, calculate the debt coverage ratio of this commercial loan. Estimated net operating income (NOI) in the first year: $150,000, Debt service in the first year: $100,000, Loan amount: $1,000,000, Purchase price: $1,300,000 A. 0.15 B. 0.67 C. 1.30 D. 1.50

Q: Construction loans are used to finance the costs associated with erecting the building or buildings on a site. All of the following would be typical of a construction loan EXCEPT: A. LTV ratios above 90 percent B. Preleases with anchor tenants C. Relatively short maturity length of one to three years that may also allow for time to construct and lease up the project D. Personal liability

Q: Some investors obtain more than one loan when acquiring properties, thereby substituting more debt financing for equity financing. A traditional second mortgage is secured by: A. an equity interest in their company (e.g., LLC) B. the borrowers pledge of the property as collateral C. a set of US Treasury securities whose coupon payments replace the mortgage cash flows D. a balloon payment made by a government sponsored enterprise

Q: When a lender receives a specified portion of a propertys net operating income and/or net sale proceeds as part of the loan agreement, this loan type is more commonly referred to as a: A. Mini-perm loan B. Mezzanine loan C. Participation loan D. Bullet loan

Q: Commercial banks most commonly provide floating rate loans. However, borrowers who prefer a fixed rate can obtain an agreement that exchanges floating rate payments for a fixed rate schedule. This type of agreement is more commonly referred to as a(n): A. Curtailment B. Defeasance C. Foreclosure D. Interest rate swap

Q: Based on your understanding of the concept of a lockout provision, lenders are able to reduce their exposure to which of the following risks through its use? A. Default risk B. Reinvestment risk C. Liquidity risk D. Interest rate risk

Q: The flexibility to prepay the principal on a mortgage loan differs significantly between commercial and residential mortgages. Which of the following clauses prohibits prepayment of the mortgage loan for a specified period of time after its origination? A. Lockout provisions B. Yield maintenance agreements C. Defeasance D. Curtailment

Q: The note is the document used to create a legal debt. In most states, the note creates personal liability for residential borrowers. When mortgage lenders have access to other borrower assets in situations where the foreclosure sale price is less than the total amount of the loan outstanding, we commonly refer to this type of loan as a: A. nonrecourse loan B. mini-perm loan C. partially amortizing loan D. recourse loan

Q: 23 The use of a mezzanine loan in the purchase of a commercial property has all of the following impacts on the borrower EXCEPT: A. Allows the borrower to increase their financial leverage in the purchase of the property B. Increases the borrowers expected first year return on equity C. Mitigates the risk of financing for the borrower D. Requires the borrower to pledge an equity interest in their company (e.g., LLC) as collateral for the loan rather than pledging the property.

Q: If the mortgage loan is going to be packaged with similar loans and then resold to investors as part of a commercial mortgage-backed security, the originating lender may rely more heavily on examining which of the following ratios in order to determine the maximum amount they are willing to lend to the borrower? (Note: This ratio indicates the cash-on-cash return the lender would earn on its invested capital if it had to foreclose on the property immediately after originating the loan) A. Debt coverage ratio B. Debt yield ratio C. Debt service ratio D. Equity dividend ratio

Q: Land acquisition, development, and construction loans used by developers differ significantly from the permanent mortgages that traditionally are used to finance the purchase of commercial properties. All of the statements listed below are true regarding land acquisition, development, and construction loans EXCEPT: A. Developers can never be held personally liable for such loans B. These loans have floating interest rates tied to short-term interest rate indices C. These loans are interest-only loans. D. These loans can be prepaid at any time without penalty.

Q: Different financing requirements usually are involved in the various phases of a propertys life. Which of the following types of loans is used to finance improvements to the land, such as sewers, streets and utilities? A. Land acquisition loans B. Land development loans C. Construction loans D. Bridge loans

Q: Which of the following terms refers to a written agreement that binds the lender to make a loan to the borrower provided the borrower satisfies the terms and conditions of the agreement? A. Loan application B. Loan commitment C. Loan underwriting D. Loan document

Q: Once a loan application is signed, the lender begins a process that typically includes ordering the fee appraisal, the title report, and a number of third party inspection, compliance, and engineering reports in an attempt to make sure the potential borrower did not misrepresent the property in any way in the original loan submission package. This process is more commonly referred to as: A. Due diligence B. Loan submission C. Loan development D. Defeasance

Q: Prospective borrowers often submit loan requests directly to lenders. However, commercial loan requests can also be submitted through another channel in which a permanent lender agrees to purchase loans or consider loan requests from a mortgage banker or broker. This type of business relationship is more commonly referred to as a(n): A. installment sale B. joint venture C. correspondent relationship D. sale-leaseback

Q: Relative to residential loans, the underwriting process for commercial loans is more complicated. The commercial loan underwriting process focuses first on which of the following? A. Individual borrowers credit quality B. Income producing potential of the collateral property C. Individual borrowers wages D. Individual borrowers personal assets

Q: Although nonrecourse loans dominate the commercial mortgage lending practices of pension funds, life insurance companies, and commercial mortgage-backed security (CMBS) originators, banks are likely to require some form of a guarantee by the organizer/sponsor of the investment opportunity to make the lender whole in the event the lender suffers a loss on the loan. This protection to the lender is more commonly referred to as a: A. Credit enhancement B. Property externality C. Joint venture D. Mezzanine loan

Q: The use of financial leverage by real estate investors can be a double-edged sword. All of the following statements regarding the use of financial leverage by real estate investors are true EXCEPT: A. The use of financial leverage by real estate investors mitigates the impact that limited financial resources would otherwise have on their pursuit of investment opportunities. B. The use of financial leverage by real estate investors will increase the internal rate of return (IRR) on equity as long as the cost of borrowing is less than the unlevered IRR. C. The use of financial leverage reduces the real estate investors exposure to default risk. D. The use of financial leverage by real estate investors makes the realized return on equity more sensitive to changes in rental rates and resale values.

Q: In order to better understand a borrowers probability of default, lenders have a number of tools at their disposal. The ratio that measures the percentage of the price (or value) of a property that is encumbered by the first mortgage is referred to as the: A. debt coverage ratio (DCR) B. loan-to-value ratio (LTV) C. break-even ratio (BER) D. price-earnings ratio (PE)

Q: An interest-only balloon mortgage loan is commonly referred to as a(n): A. Mini-perm loan B. Mezzanine loan C. Land acquisition loan D. Bullet loan

Q: There are a number of alternatives when it comes to the capital structure for acquisitions of commercial real estate. Through which of the following lending relationships does the lender have the right to foreclose on the equity of the borrowers company in the case of default? A. Second mortgage loan B. Mezzanine loan C. Mini-perm loan D. Construction loan

Q: The yields on commercial mortgages have been approximately 2 percent higher, on average, than the yields on comparable maturity treasury securities over the past 15 years. Often considered the signature risk of commercial mortgage lending, this spread primarily represents: A. Default risk B. Interest rate risk C. Pipeline risk D. Fallout risk

Q: While floating rate mortgage loans may offer lower interest rates to borrowers than comparable fixed-payment mortgages, floating-rate loans may increase a lenders exposure to which of the following risks since borrowers may not be able to continue to service the debt if payments on the loan increase significantly? A. Default risk B. Interest rate risk C. Liquidity risk D. Pipeline risk

Q: If mortgage rates decline significantly, borrowers may decide to prepay the principal on their loan even if they face prepayment penalties. One way that lenders protect themselves from prepayments in such circumstances is by requiring the borrower who prepays to purchase for the lender a set of U.S. Treasury securities whose coupon payments replicate the cash flows the lender will lose as a result of the early retirement of the mortgage. This process is referred to as: A. Lockout B. Yield-maintenance C. Defeasance D. Curtailment

Q: In contrast to residential mortgage loans, most fixed-rate commercial mortgages do not allow borrowers to freely prepay the principal on their loan. Which of the following prepayment penalties ties the penalty that borrowers pay to how far interest rates have declined since origination? A. Lockout provisions B. Yield-maintenance agreements C. Defeasance D. Curtailment

Q: While balloon mortgage loan payments are typically based on a 30-year amortization schedule, the loan actually matures in either 3, 5, 7, or 10 years. Of the following, which is the primary risk that a lender reduces their exposure to through the relatively short loan term on a balloon mortgage? A. Default risk B. Interest rate risk C. Liquidity risk D. Financial risk

Q: Some commercial mortgages have adjustable, or floating, interest rates. The index rate to which the contract rate is tied is typically which of the following for commercial mortgages? A. The yield on a constant maturity Treasury security of the same term B. The cost of funds index (COFI) C. The London Interbank Offer Rate (LIBOR) D. The interest rate on a comparable maturity level-payment mortgage

Q: Which of the following types of loans is the most common instrument used to finance the acquisition of existing commercial property? A. Fixed-rate balloon mortgage loans B. Floating-rate mortgage loans C. Mezzanine loans D. Construction loans

Q: In recent years, lenders have been unwilling to relieve borrowers from personal liability in the event of fraud, environmental problems, or unpaid property tax obligations. Therefore, some lenders include a clause that pierces the single-purpose borrowing entity to hold the actual borrower liable in such instances. This clause is commonly referred to as a: A. habendum clause B. lockout provision C. defeasance D. bad boy carve-out clause

Q: One of the main differences between residential mortgage loans and permanent financing of commercial real estate lies in the allocation of liability in the case of default. In commercial real estate, a bankruptcy remote special-purpose entity is created that shields the actual borrower from personal liability. When a lender cannot lay claim to the personal assets of the defaulted borrower, this type of loan is commonly referred to as a: A. nonrecourse loan B. mini-perm loan C. partially amortizing loan D. interest-only loan

Q: With the recent popularity of adjustable-rate mortgages (ARM), lenders have begun to offer ARMs with different adjustment periods. Which of the following ARM choices will most likely have the highest initial rate? A. Three-year-one-year ARM B. Five-year-one-year ARM C. Seven-year-one-year ARM D. Ten-year-one-year ARM

Q: Partially amortizing mortgage loans require periodic payments of principal, but are not paid off completely over the loans term to maturity. Instead, the balance of the principal amount is paid at maturity in what is commonly referred to as a: A. balloon payment B. early payment C. up-front payment D. payment cap

Q: Assume that a borrower has a choice between two comparable fixed-rate mortgage loans with the same interest rate, but different mortgage terms, one being a 30-year mortgage and the other a 15-year mortgage. Under financially unconstrained circumstances, which of the following statements best describes the borrowers preference? A. The borrower would prefer the 30-year mortgage. B. The borrower would prefer the 15-year mortgage. C. The borrower would be indifferent between the two mortgages. D. The borrower is unable to compare mortgage loans of two different maturities.

Q: Recently, 15-year mortgages have increased in popularity amongst both borrowers and lenders. Which of the following groups of borrowers would typically be the least interested in a 15-year mortgage? A. Mature households with minimal financial constraints B. First-time homebuyers C. Homeowners who are refinancing to obtain a lower rate than is available on a comparable 30-year mortgage D. Homeowners who are interested in selling their property within five years

Q: While a variety of loan terms are available in a lenders mortgage menu, the most common loan term on a level-payment mortgage is: A. 7 years B. 15 years C. 30 years D. 40 years

Q: When fully amortizing loans call for equal periodic payments over the life of the loan they are known as: A. level-payment mortgages B. adjustable-rate mortgages C. interest-only mortgages D. early-payment mortgages

Q: For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses associated with obtaining the mortgage should be included, not the settlement costs associated with obtaining ownership of the property. With this in mind, which of the following costs should not be included in ones calculation of EBC? A. Discount points B. Loan origination fees C. Appraisal fee D. Buyers title insurance

Q: When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loans 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.

Q: Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following EXCEPT: A. All finance charges in connection with the loan, such as discount points, origination fees, and underwriting fees. B. All compensation to the originating brokers if one was used by the borrower. C. Any prepayment of principal to be made on the loan. D. Premiums for required forms of insurance

Q: From the borrowers perspective, the effective borrowing cost is often viewed as the implied internal rate of return (IRR), since it takes into consideration costs that the borrower faces, but which are not passed on as income to the lender. Included in this calculation are certain closing costs, which may consist of all of the following EXCEPT: A. Title insurance B. Mortgage insurance C. Recording fees D. Earnest money

Q: The monthly mortgage payment divided by the loan amount is commonly referred to as the: A. loan balance B. effective borrowing cost C. lenders yield D. monthly loan constant

Q: Suppose you have taken out a $325,000 fully-amortizing fixed rate mortgage loan that has a term of 30 years and an interest rate of 5.5%. In month 10 of the mortgage, how much of the monthly mortgage payment does the interest portion consist of? A. $370.68 B. $1,474.64 C. $1,489.58 D. $1,845.31

Q: Assume you have taken out a partially amortizing loan for $1,000,000 that has a term of 7 years, but amortizes over 20 years. Calculate the balloon payment if the interest rate on this loan is 9%. A. $8,997 B. $559,199 C. $825,679 D. $936,405

Q: Suppose you have taken out a $400,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 3.75%. In month 1 of the mortgage, how much of the monthly mortgage payment does the interest portion consist of? A. $9.09 B. $1,250.00 C. $1658.89 D. $2,908.89

Q: You have taken out a $300,000, one-year ARM. The teaser rate in the first year is 5.5% (annual). The index interest rate after the first year is 4.00% and the margin is 2.25%. (Note: the term on this ARM is 30 years). There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 13 of the mortgage loans term. A. $980.08 B. $1,703.37 C. $1,843.88 D. $1,891.81

Q: You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual). The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: the term on this ARM is 30 years). There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 13 of the mortgage loans term. A. $321.64 B. $506.69 C. $566.26 D. $597.21

Q: You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual). The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: the term on this ARM is 30 years). There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 1 of the mortgage loans term. A. $321.64 B. $506.69 C. $567.79 D. $599.55

Q: Given the following information on a 30-year fixed-payment fully-amortizing loan, determine the owners equity in the property after 7 years if the market value of the property is $240,000 at the end of year 7. Interest Rate: 7%, Monthly Payment: $1,200. A. $15,967.33 B. $59,630.92 C. $75,598.25 D. $164,401.75

Q: You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for 3 years. Determine the owners equity in the property after 3 years if the market value of the property at the end of year 3 is $400,000. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years) A. $13,705.75 B. $50,000.00 C. $63,705.75 D. $336,294.25

Q: Lets assume that you have just taken out a mortgage loan for $200,000 with an origination fee of 2 points due upfront. The mortgage term is 30 years and the mortgage rate is fixed at 4%. What is the cost of the origination fee in dollar terms? A. $400.00 B. $954.83 C. $4000.00 D. $4954.83

Q: Assume you have taken out a partially amortizing loan for $325,000 that has a term of 7 years, but amortizes over 30 years. Calculate the balloon payment at maturity (Year 7) if the interest rate on this loan is 4.5%. A. $1,646.73 B. $118,468.21 C. $282,835.42 D. $324,572.02

Q: Suppose you have taken out a $125,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 6%. After your first mortgage payment, how much of the original loan balance is remaining? A. $1,054.82 B. $120,603.78 C. $124,570.18 D. $124,875.56

Q: Suppose you have taken out a $200,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 4.25%. In month 2 of the mortgage, how much of the monthly mortgage payment does the principal repayment portion consist of? A. $705.51 B. $708.33 C. $796.22 D. $799.04

Q: A. 0.6% B. 3.8% C. 7.0% D. 7.4%

Q: You have taken out a $225,000, 3/1 ARM. The initial rate of 5.8% (annual) is locked in for 3 years and is expected to increase to 6.5% at the end of the lock period. Calculate the initial payment on the loan. (Note: the term on this 3/1 ARM is 30 years) A. $1,320.19 B. $1,422.15 C. $1,874.45 D. $1959.99

Q: You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for 5 years. Calculate the payment after recasting the loan (i.e., after the reset) assuming the interest rate after the initial lock period is 8.0%. (Note: the term on this 5/1 ARM is 30 years) A. $1,684.59 B. $1,784.79 C. $1,887.75 D. $2,138.02

Q: You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for 3 years. Calculate the outstanding balance on the loan after 3 years. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years) A. $2,098.43 B. $2,183.95 C. $336,294.25 D. $347,901.57

Q: Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly mortgage payment that the homeowner would need to make if this loan is fully amortizing? A. $552.50 B. $2,761.02 C. $17,820.72 D. $33,458.47

Q: A. 7.7% B. 8.2% C. 8.5% D. 9.1% Ans: C

Q: Given the following information, calculate the balloon payment for a partially amortized mortgage. Loan amount: $84,000, Term to maturity: 7 years, Amortization Term: 30 years, Interest rate: 4.5%, Monthly Payment: $425.62. A. $9,458 B. $30,620 C. $73,102 D. $84,000

Q: Given the following information on an interest-only mortgage, calculate the monthly mortgage payment. Loan amount: $56,000, Term: 15 years, Interest Rate: 7.5%. A. $169.13 B. $350 C. $519.13 D. $4,200

Q: Given the following information on a 30-year fixed-payment fully-amortizing loan, determine the remaining balance that the borrower has at the end of seven years. Interest Rate: 7%, Monthly Payment: $1,200. A. $17,143 B. $79,509 C. $164,402 D. $180,369

Q: Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower. Loan Term: 30 years, Monthly Payment: $800, Interest Rate: 6%. A. $6,707 B. $9,295.15 C. $13,333 D. $133,433

Q: The APR can be a controversial measure of borrowing cost because it tends to: A. overstate the true borrowing cost by assuming we hold mortgage until maturity B. understate the true borrowing cost by assuming we hold mortgage until maturity C. overstate the true borrowing cost by assuming we do not hold mortgage until maturity D. understate the true borrowing cost by assuming we do not hold mortgage until maturity

Q: To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages, mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate. This rate is referred to as a(n): A. margin rate B. teaser rate C. index rate D. discount rate

Q: One reason why adjustable-rate mortgages (ARMs) have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved. If interest rates were to rise on a level-payment mortgage (LPM) the interest rate risk of the loan would typically be borne by: A. the borrower only B. the lender only C. both the borrower and lender D. neither the borrower nor the lender

Q: In considering a 3/1 adjustable-rate mortgage (ARM), the interest rate will be fixed for how many years? A. One year B. Two years C. Three years D. Four years

Q: Suppose a bank decides to make a mortgage loan to an individual so that they may purchase a home. The homeowner will pay the bank $1,500 per month in mortgage payments for the next 30 years. The bank will collect the mortgage payments at the end of the month. If the borrower does not default on their loan, how much money will the bank have accumulated if they could reinvest the monthly income at an annualized rate of 5% for the entire investment horizon? A. $23,058.68 B. $99,658.27 C. $279,422.43 D. $1,248,387.95

Q: Suppose an investor is interested in purchasing the following income producing property at a current market price of $2,500,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $100,000, Year 2 = $150,000, Year 3 = $200,000, Year 4 = $250,000. If the estimated proceeds from selling the property at the end of year four is $3,000,000, what is the internal rate of return (IRR) of the project? A. -33.93% B. 5.72% C. 8.99% D. 10.99%

Q: Suppose an investor has the opportunity to make an investment that promises to pay her $100,000 5 years from now. How much should this investor be willing to pay today for this investment opportunity if he could otherwise invest his money in an interest bearing account that yields 5% (annual) and compounds interest on a monthly basis? A. $77,920.54 B. $78,352.62 C. $97,942.46 D. $432,947.67

Q: Suppose an investor deposits $5,000 in an interest-bearing account at her local bank. The account pays 2.5% (annual) with interest compounded monthly. If the investor plans on withdrawing the original principal plus accumulated interest at the end of 10 years, what is the total amount that she should expect to receive assuming interest rates do not change? A. $5,105.15 B. $6,400.42 C. $6,418.46 D. $96,790.75

Q: Suppose an investor is interested in purchasing the following income producing property at a current market price of $490,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $48,000, Year 2 = $49,440, Year 3 = $50,923, Year 4 = $52,451. Assuming that the required rate of return is 14% and the estimated proceeds from selling the property at the end of year four is $560,000, what is the NPV of the project? A. -$12,860.53 B. $145,574.52 C. $331,564.96 D. $477,139.47