1. A 5,400,000 30-year fully amortizing fixed rate mortgage loan at 4.5% annual interest with monthly payments has been seasoned for 12 years. What is the balloon payment due on the contract maturity date?

a. 27,361

b 1,467,627

c 5,400,000

d 0

2. You have a choice of two 20-year fully amortizing mortgage loans with monthly payments. 1) with a 10% down payment, you can obtain a 6% annual interest rate or 2) with a 20% down payment, 5% annual interest rate. What is the effective annual interest rate on the addition 10% borrower if you take the first loan?

a. 5%

b. 6%

c 13%

d18%

3. A borrower takes out a $400,000 30-year fully amortizing 1-year LIBOR based ARM loan with a 2.5% margin and monthly payments. The loan has a “teaser” rate of 1% for the first year, after which the rate resets annually with 2% annual and 5% lifetime interest rate increase caps. On the first reset date, 1-year LIBOR is 1.5%. What would be the monthly payment in the second loan year?

a. 1888

b.1722

c.1673

d.1287

4. Lender’s prefer a higher DSCR because:

a. More NOI is available to cover debt service payments

b. Less debts service is needed to pay off the mortgage

c. More debt service is required to be paid by the borrower

d. Less NOI is required to cover debt service payments

5. A borrower takes out a 15-year fully amortizing fixed rate mortgage loan for $1.8 million with an annual interest rate of 5% and is charged 3 points by the lender. What is the approximate effective annual interest rate on the loan if the loan is payable monthly and is carried to maturity?

a. 5.47%

b. 4.55%

c. 5.27%

d. 5%

6. Which of the following is a” soft cost” of construction?

a. The cost of architectural drawings

b, The cost of pouring the foundation

c. The cost of erecting the building

d. The cost of finishing the interior space

7. A property that is purchased for $15 million produces an annual NOI of $1.2 million. Financing is obtained at a 60% LTV ratio at a 5.75% annual interest rate payable monthly and fully amortized over 30 years. What is the cash return on invested equity?

a. 5.2%

b. 6.3%

c. 8.0%

d. 9.5%

8. A lender requires a 1.2 debt service coverage ratio as a minimum. If the net Operating income of a property is $60,000, what is the maximum amount of debt service the lender would allow?

a. $30,000

b. $50,000

c. $60,000

d. $72,000

9. A property investor wants to acquire a 30,000 square foot office building for 250 per square foot. A lender will fund a purchase money mortgage with a maximum LTV of 70%. What is the minimum amount of equity needed to close the acquisition?

a. 7,500,000

b. 5,250,000

c. 2,250,000

d.1,800,000

10. A borrower takes out a 10-year interest only mortgage loan for $600000 with monthly payments. In the first two years the loan has an a “teaser” rate of 1%, after which the rate resets each year with 2% annual and 5% lifetime rate caps. On the first reset date, the fully indexed rate is 6%. What would be the monthly payment in the third loan year?

a. 3000

b. 2500

c. 1500

d. Because of the interest rate caps, the monthly payment would not changes

11. Which of the following is true regarding cap rates?

a. Falling supply tends to lower cap rates

b. Rising interest rates tend to lower cap rates

c. Rising demand tends to lower cap rates

d. Falling interest rates tend to lower cap rates

12. A property is sold for $600,000 with a 75% purchase money mortgage at a 7% annual interest rate fully amortized over 30 years. If the property’s net operating income is $36,000,what is the acquisition cap rate?

a. 24.0%

b. 12.0%

c. 6.0%

d. 0.0%

13. A deposit placed in an account earning 9% interest annually will approximately double in value in how many years?

a. 6

b. 8

c. 10

d. 12

14. Land parcels in a new development are selling for $100,000 each and the developer projects total revenue from land sales to be $ 30 million. The project’s lender requires that the $15 million land loan be completely paid off by the time that 75%of the parcels have been sold. What would be the lender’s release price for each parcel?

a. $50,000

b. $66,667

c. $100,000

d. $75,000

15. A residential borrower takes out a 30-year fully amortizing fixed rate mortgage loan for 250,000 with an annual interest rate of 5%. What is the monthly payment of principle and interest

a. 1,042

b. 1,250

c. 1,342

d. 1,555

16. In the prior question, what portion of the first month’s payment would be interest?

a. 300

b. 1,042

c. 1,342

d. 1,555

17. A residential borrower takes out a 30-year fully amortizing, conforming, fixed rate mortgage loan for 540,000 with an annual interest rate of 3.5%. What portion of the first month payment would be principle?

a. 850

b. 2425

c. 1,818

d. 1,575

18. Which of the following is false regarding an option contract?

a. An option contract allow the developer to perform a preliminary market study and feasibility analysis before having to acquire the property

b. If the developer decides to purchase the property, the price of the option may be applied toward the price of the property

c. If the developer decides not to purchase the property, the landowner will usually refund any money paid for the option

d. An option contract provides the developer with the assurance that a property will not be sold during the option period

19. Property in a certain market is expected to appreciate at a rate of 5% per year. If an investor borrows at an LTV of 75% and the property’s NOI exactly covers the mortgage payments, what would be the expected annual appreciation rate on invested equity?

a. 5%

b. 10%

c. 20%

d. 25%

20. A property was purchased for 2,000,000 at a cap rate of 4% with an 80% LTV interest-only loan at a 5% annual interest rate. If after five years the property appreciated by 30%, what would be the amount of the owner’s equity at that time?

a. 120,000

b. 400,000

c. 600,000

d. 1,000,000

21. One of the primary advantages of a limited liability company over a limited partnership is:

a. An LLC does not need to have any general partners

b. An LP does not need to have any general partners

c. An LLC is a pass-through entity whereas an LP is not

d. An LP is a pass-through entity whereas an LLC is not

22. A property that produces an annual NOI of $125,000 was purchased for $2,500,000. Debt service for the first year was $105,00 of which $93,000 was interest and the remainder was principal. Annual depreciation for tax purposes is $25,000. What is the taxable income?

a. $20,000

b. $7,000

c. $43,000

d. -$5,000

23. A property produces an after tax internal rate of return of 12.2%. If the investor has a marginal tax rate of 31%, what is the before-tax equivalent yield?

a. 3.8%

b. 8.4%

c. 17.7%

d. 39.4%

24. A property produces a first year NOI of $100,000 that is expected to grow by 3% annually. If the property is sold at the end of year 10, what is the expected sale price based on a terminal capitalization rate of 6.5%applied to the eleventh year NOI?

a. $1,538,462

b. $2,007,343

c. $2,067,564

d. $2,129,591

25. A property is sold for $7,200,000 with total selling costs at 3% of the sales price.

The mortgage balance at the time of sale is $3,600,000. The property was purchased five year ago for $5,400,000. Annual depreciation deductions of $150,000 have been taken each year. If the combined federal and state tax rates on capital gains is 28%, what is the after-tax cash flow from the sale of the property?

a. $2,730,480

b. $2,898,480

c. $2,940,480

d. $3,096,000

26. Which of the following is true concerning the acquisition capitalization rate?

a. It is an IRR

b. It explicitly considers projected future income

c. It expresses the relationship between income and value at a specific point in time

d. It is the rate of return that investors expect to earn on al capital invested

27. A small office building is purchased with a $1,200,000 balloon mortgage that is due at the end of ten years. Payments are based on a 25 year amortization period. If one point is charged, how much of that point can be deducted annually for tax purposes?

a. $12,000

b. $1,200

c. $480

d. $0

28. The potential risks in a real estate investment include:

a. Liquidity risk, capital markets risk, legislative risk

b. Business risk, financial risk, management risk

c. Interest rate risk, environment risk, market risk

d. All of the above

29. After owning and managing a shopping center for many years, the property substantially increases in value and the owner wants to realize some or all of the increased equity while paying litter or no current taxes. The owner might:

a. refinancing the property with a larger loan at a lower interest rate if available

b. trade the property for a larger property in section 1031 exchange

c. sell the property under an installment sale

d. any of the above

30. A partnership agreement provides that upon sale the net cash proceeds are to be distributed first to Mr.Smith in an amount equal to his original investment less any cash distribution previously received, then split 50-50 between Mr. Smith and Ms. Jones. If the net cash proceeds from sale are $ 1million, how much would Ms. Jones receive if Mr. Smith’s initial investment was $400,000 and he previously received $25,000 in distributions?

a. $300,000

b. $312,500

c. $325,000

d. $500,000

31. One of the most popular amortizing mortgages is the constant payment mortgage (CPM). Which of the following characterizes the components of the CPM payment over the life of the loan?

Answers below are ordered as follows : amotization payment Interest

a. increasing decreasing constant

b. constant increasing decreasing

c. increasing constant decreasing

d. decreasing constant increasing

32. A borrower is purchasing a property for 1,800,000 and can choose between two possible loan alternatives. The first is a 70% loan for 25 yrs at 6% interest and the second is a 75% loan for 25 yrs at 6.6% interest. Assuming the loan will be held to maturity, what is the incremental borrowing cost on the extra money?

a. 6%

b. 10.5%

c. 14%

d. 18%

33. A borrower obtains a 750,000 reverse annuity mortgage with monthly payments to be acquired over 10 years. If the annual interest rate on the mortgage loan is 7%, what monthly payment will be received by the borrower?

a. 4,333

b. 5,000

c. 6,250

d. 8,700

34. A borrower gets a 30-year fully amortizing fixed rate mortgage loan for 200,000 with an annual interest rate of 6% payable monthly and no prepayment penalty. If she wants to pay off the loan after 10 years, what would be the payoff amount?

a. 107,371

b. 142,088

c. 108,007

d .84,888

35. If a particular desirable site is a 100’ by 80’ rectangular shape, and if the local zoning codes require that the building’s footprint be setback ten feet from each side of the property line, and if the FAR for that site is 4.0 per square foot of the building’s footprint. What is he maximum building square footage that can be built?

a. 72,000

b. 51,200

c. 18,000

d. 15,300

36. Which of the following is false concerning mechanic’s liens?

a. Gives contractors and materials suppliers the right to attach a lien on real estate

b. Can lead to a judicial sale of the property if the mechanic’s bills are unpaid

c. Valid even after the bill for labor and materials has been fully paid

d. Might not be disclosed by the public records

37. Expenses for a 1,000 square foot office space are $6 per square foot. The lease specifies an expense stop of $5.4. What is the total expense paid by the landlord?

a. 6,000

b. 5,400

c. 600

d. 0

38. A 15,000 square foot office building is fully leased as $12 per square foot per year. The building’s expense $6.5 per square foot per year and an expense stop is $5 per ft2 per year. What is the annual net operating income?

a. 180,000

b. 105,000

c. 82,500

d. 75,000

39. Lender’s prefer a higher DSCR because:

a. More NOI is available to cover debt service payments

b. Less debts service is needed to pay off the mortgage

c. More debt service is required to be paid by the borrower

d. Less NOI is required to cover debt service payments.

40. A property’s adjusted tax basis can be describe as:

a. Original Cost + capital improvements – accumulated depreciation

b. Original cost – mortgage balance – sales costs

c. Sales price + capital improvements – accumulated depreciation

d. Sales price – mortgage balance – sales costs

41. Which of the following is not a typical benefit of renovating a property?

a. Increased rents

b. Increased occupancy

c. Increased operating expenses

d. Increased property value

42. Which of following is not a benefit of refinancing?

a. The investor can increase financial leverage

b. IT is an alternative to a sale of the property

c. Financial risk is increased

d. No taxes have to be paid on the additional loan proceeds

43. Which of following does not represent a potential benefit to a company from selling and leasing back a property?

a. Provides a source of capital

b. Increases the company’s operating income by reducing depreciation deductions

c. Demonstrates the value of the company’s real estate to the marketplace

d. Increases the company’s taxable income by reducing depreciation deductions

44. A real estate’s syndication that raises capital before identifying any of the properties it will eventually own is known as a(n)

a. Safe harbor

b. Blind pool

c. Accredited investor

d. Caveat emptor

45. One would see the greatest amount of diversification from two investments that are:

a. Positively correlated

b. Negatively correlated

c. Not correlated

d. Perfectly correlated

46. Global property investing is attractive for all of the following reasons except:

a. Increased diversification is possible with low or negative regional correlations

b. Higher returns are potentially available in certain foreign markets

c. Currency, political and other risks in foreign markets must be carefully managed

d. Property investment opportunities outside the U.S have been growing rapidly

47. Which of the following would not typically result in an increase in housing demand?

a. Population growth

b. Higher household income

c. Higher interest rates

d. Employment growth

48. The due diligence process

a. Uncovers all of the potential risks of an investment

b. Underwrites a project’s future cash flows with a high degree of certainty

c. is necessary only within an investment posses a high degree of risk

d. is an imperfect process to determine whether the potential returns from an investment are sufficient given the potential risk

49. Annual expenses for a 120000 square foot office space are $6.50 per square foot. The lease specifies an expense stop of $5.00 per square foot. What is the total annual expense load paid by the tenant in connection with this space?

a. $600,000

b. $0

c. $180,000

d. $780,000

50. The balloon payment due on the contract maturity date of a $5,400,000 30 year fully amortizing fixed rate mortgage loan at 4.5% annual interest with monthly payments is?

a. $1,800,000

b. $1,441,609

c. $192,812

d. $0

**Subject Business Finance**