Question

1. One advantage of Adjustable Rate Mortgages (ARM) is that

a. lenders face lower levels of interest rate risk than a fixed rate mortgage.

b. the outstanding loan balance can be adjusted regularly.

c. the default risk of borrowers is lower than under a fixed rate mortgage.

d. All of the above.

2. Gilbert takes out a 23-year adjustable rate mortgage loan for $6,000,000 with monthly payments. The first two years of the loan have a “teaser” rate of 2%, after that, the rate can reset with a 2% annual rate cap. On the reset date, if the composite rate is 7%, what would the Year 3 monthly payment be?

a. $31,467.8

b. $32,768.6

c. $35,812.3

d. $42,327.9

3. A borrower has obtained a 25-year, $2,500,000 loan at 5% with monthly payments from Bank A. Ten years later, Bank B wants to purchase the mortgage from Bank A and Bank B wants to get at least 6% return from the purchase. How much would Bank B be willing to pay for the loan?

a. $1,528,918.3

b.$1,625,978.1

c. $1,731,899.4

d. $1,848,111.9

4. A property owner charges a rent of $30 in the first year, $34 in the second year, and $36 in the third year, but provides two months of free rent in the first year as a concession. Using an 8 percent discount rate, what is the effective rent over the three years?

a. $32.18

b.$33.27

c. $33.89

d. $34.91

5. A 200 square foot retail shop inside a shopping mall is leased at a monthly rental of $300 per square foot. The shop is vacant one month out of the year. Current management expenses are $30 per square foot and an expense stop is set at $25 per square foot. What is the monthly net operating income in the year?

a. $48,000

b. $49,000

c. $50,000

d. $51,000

6. A restaurant is for sale for $14,500,000. It is estimated that the restaurant will earn $2,000,000 a year for the next 16 years. At the end of 15 years, it is estimated that the restaurant will sell for $35,000,000. Which of the following would be MOST LIKELY to occur if the investor’s required rate of return is 14 percent?

a. Investor would pursue the project

b. Investor would not pursue the project

c. Investor would pursue the project if the holding period were longer than 15 years

d. Not enough information provided

7. A historical site produces a net operating income of $700,000 in a year. Assuming the operating income generated is perpetual in nature and it grows at 2% per year. Using a discount rate of 8%, the site’s value is estimated to be

a. $7,000,000

b. $8,750,000

c. $11,666,667

d. $35,000,000

8. Consider a small flat with net operating income (NOI) of $72,000 and a debt coverage ratio of 1.6 applied to the first year’s NOI. What would be the estimated monthly mortgage payment?

a. $3,750

b. $9,600

c. $45,000

d. $60400

9. A small shop that produces an annual NOI of $205,400 was purchased for $2 million. Debt service for the year was $171,948 of which $118,547 was interest payment. Annual depreciation was $40,000. What was the taxable income?

a. $111,999

b. $46,853

c. $33,452

d. -$6,548

10. A property is financed with a 60% loan-to-value ratio at 8% interest over 25 years. What would the BTIRRE on equity be estimated at given that the BTIRRP is 11?

a. 10.1%

b. 13.8%

c. 15.0%

d. 15.5%

11. Which of the following BEST describes the process of “partitioning the IRR”?

a. Dividing the IRR into income and appreciation components

b. Using the IRR as a discount rate and determining how much of the present value comes

from income and resale

c. Dividing the IRR into before-tax and after-tax IRRs

d. Determining how much of the IRR comes from each property in a portfolio

12. “Real estate syndication” is best defined as

a. An organization that acts as a single legal entity and is held separate from the

individual investors

b. A group of investors who have combined their financial resources to provide debt

funding for a real estate project

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 with the

expertise of a real estate professional to carry out a real estate project

13. Which of the following REIT types is NOT likely to own real property?

a. Hybrid REIT

b. Equity REIT

c. Mortgage REIT

d. All of the above

Answer 1