Advanced Real Estate Finance
Exam Bank
Course Introduction
Advanced Real Estate Finance delves into the complex financial concepts and analytical tools essential for understanding investment and capital markets in the real estate sector. The course covers advanced topics such as real estate capital structure, joint ventures, securitization, mortgage-backed securities, risk management, and the application of derivatives. Students will examine sophisticated financial modeling techniques and valuation approaches, explore case studies of real-world transactions, and analyze the impact of economic cycles, policy changes, and global finance trends on real estate investments. This course equips students with the expertise to make informed financial decisions in diverse and dynamic real estate markets.
Recommended Textbook
Real Estate Finance Investments 16th Edition by William B Brueggeman
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23 Chapters
827 Verified Questions
827 Flashcards
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Chapter 1: Real Estate Investment: Basic Legal Concepts
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26 Verified Questions
26 Flashcards
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Sample Questions
Q1) What type of estate lasts for an indefinite period of time?
A)Freehold estate
B)Estate from year-to-year
C)Leasehold estate
D)Estate for years
Answer: A
Q2) Real property refers to the ownership rights associated with real estate.
A)True
B)False
Answer: True
Q3) Mr.Smith has allowed Mrs.Jones to run a sewer line through Mr.Smith's backyard so that Mrs.Jones has access to the city sewer system.This is an example of a(n):
A)Easement
B)Encumbrance
C)Estate for years
D)Title assurance
Answer: A
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Chapter 2: Real Estate Financing: Notes and Mortgages
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) A senior mortgage holder is owed a mortgage balance of $140,000 and brings a foreclosure suit which includes all junior claimants in the suit.If the senior mortgage holder purchases the property for $140,000 at the foreclosure sale,what happens to the claim of the junior claimants?
A)The liens of the junior claimants are unaffected and the debt is due upon sale
B)The liens of the junior claimants are extinguished,but the debt owed to the junior claimants is unaffected
C)The liens of the junior claimants and the debt owed to them are extinguished
D)The liens of the junior claimants are unaffected,but the debt owed to them is extinguished
Answer: B
Q2) Which of the following types of bankruptcy is available to a business to reorganize and rehabilitate the debtor?
A)Chapter 7
B)Chapter 11
C)Chapter 13
D)Chapter 17
Answer: B
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Chapter 3: Mortgage Loan Foundations: The Time Value of Money
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) How much money does Ted need to invest each month in order to accumulate $10,000 over a five-year period,if he expects to get a return of 5.625% per year?
A)$144.71
B)$1,787.30
C)$148.94
D)$146.36
Answer: A
Q2) An investment may have more than one internal rate of return. A)True
B)False
Answer: True
Q3) Your friend just won the lottery.He has a choice of receiving $50,000 a year for the next 20 years or a lump sum today.The lottery uses a 15% discount rate.What would be the lump sum amount your friend would receive?
A)$312,967
B)$316,426
C)$500,000
D)$1,000,000
Answer: A
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Chapter 4: Fixed Interest Rate Mortgage Loans
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38 Verified Questions
38 Flashcards
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Sample Questions
Q1) Prepayment penalties increase the lender's mortgage yield and discount points decrease it.
A)True
B)False
Q2) Which of the following is NOT a determinant of interest rates for single family residential mortgages?
A)The demand and supply of mortgage funds
B)Inflation expectations
C)Liquidity
D)The demand and supply of apartments
Q3) Because its payment stream looks like a staircase,which loan is sometimes referred to as "stepped-up" financing due to prearranged payment increases?
A)CAM
B)CPM
C)GPM
D)ARM
Q4) With a reverse mortgage the borrower receives payments from the bank.
A)True
B)False
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Chapter 5: Adjustable and Floating Rate Mortgage Loans
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) A borrower with an interest-only loan may end up owing more at the end of the loan than the original loan amount.
A)True B)False
Q2) ARMs were developed because lenders were tired of offering a limited selection of loan alternatives to borrowers.
A)True B)False
Q3) An ARM may also be referred to as a floating payment loan. A)True B)False
Q4) PLAMs have been very popular with lenders. A)True B)False
Q5) ARMs eliminate all the lender's interest rate risk. A)True B)False
Q6) Negative amortization reduces the principal balance of a loan. A)True B)False
Page 7
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Chapter 6: Mortgages: Additional Concepts, analysis, and Applications
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35 Verified Questions
35 Flashcards
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Sample Questions
Q1) A borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives.The first is a 90% loan for 25 years at 9% interest and 1 point and the second is a 95% loan for 25 years at 9.25% interest and 1 point.Assuming the loan will be held to maturity,what is the incremental cost of borrowing the extra money?
A)13.66%
B)13.50%
C)14.34%
D)12.01%
Q2) Homeowners should not borrow refinancing costs because the effective rate of refinancing will be higher.
A)True B)False
Q3) If interest rates decrease,the market value of a loan previously made will increase. A)True B)False
Q4) Home equity loans do not require a mortgage lien on the property. A)True
B)False
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Chapter 7: Single-Family Housing: Pricing, investment, and Tax Considerations
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) Comparable properties must be chosen from those homes that have been sold,or have been listed for sale,most recently and that are located in the same city as the subject property.
A)True
B)False
Q2) Assume that houses in an area appreciate at the rate of 4 percent a year.A borrower expects to have a loan-to-value ratio of 90 percent.What is the approximate expected appreciation rate on home equity (EAHE)?
A)4.0%
B)10%
C)20%
D)40%
Q3) A housing bubble occurs when there is a big increase in the supply of homes. A)True
B)False
Q4) Residential appraisers use only the sales comparison approach to determine value of the homes they appraise.
A)True
B)False
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Chapter 8: Underwriting and Financing Residential Properties
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38 Verified Questions
38 Flashcards
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Sample Questions
Q1) A jumbo loan:
A)Is another term for an adjustable-rate mortgage loan
B)Meets loan limits of loans that Fannie Mae and Freddie Mac can buy
C)Tends to have a higher interest rate than conforming loans
D)Has lower LTV requirements than conforming loans
Q2) General industry standards for a conventional loan specify a maximum LTV of 60 percent.
A)True
B)False
Q3) A self-employed borrower who has documentable assets but is not able to provide adequate documentation for his income may be eligible for this type of loan:
A)FNMA
B)FHLMC
C)Conforming
D)Alt-A
Q4) Someone with a credit score of 900 is likely to only qualify for a subprime loan.
A)True
B)False
Page 10
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41 Verified Questions
41 Flashcards
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Sample Questions
Q1) A building owner charges net rent of $20 in the first year,$21 in the second year,and $22 in the third year,but is providing six months of free rent in the first year as a concession.Using a 10 percent discount rate,what is the effective rent over the three years?
A)$17.28
B)$18.94
C)$20.94
D)$42.98
Q2) A building owner charges net rent of $20 in the first year,$21 in the second year,and $22 in the third year.Using a 10 percent discount rate,what is the effective rent over the three years?
A)$20.00
B)$20.94
C)$21.73
D)$52.07
Q3) Which of the following leads to rent premiums?
A)Apartments on the periphery of a site; higher floors with no elevators
B)Second or third levels in multi-level malls
C)Middle floors in an office building
D)Apartments on higher floors with elevators
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Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) The equity value can be estimated by subtracting debt service from net operating income and dividing this amount by the equity dividend rate.
A)True
B)False
Q2) A building has 12 foot ceilings that cause the electric bill to be $1,200 higher per year than a conventional ceiling height.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.
A)True
B)False
Q3) Return on investment and change in net operating income are essential factors for cost analysis.
A)True
B)False
Q4) 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
12
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Chapter 11: Investment Analysis and Taxation of Income Properties
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40 Verified Questions
40 Flashcards
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Sample Questions
Q1) A property is sold for $5,100,000 with selling costs of 3% of the sales price.The mortgage balance at the time of sale is $3,600,000.The property was purchased 5 years ago for $4,820,000.Annual depreciation allowances of $153,016 have been taken.If the tax rate is 28%,what is the after-tax cash flow from sale of the property?
A)$1,184,062
B)$969,840
C)$1,347,000
D)$1,097,218
Q2) Which of the following includes income from real estate classified as capital assets?
A)Passive income
B)Active income
C)Portfolio income
D)Passive activity income
Q3) The minimum lenders typically require for DCR in the first year is:
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Chapter 12: Financial Leverage and Financing Alternatives
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37 Verified Questions
37 Flashcards
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Sample Questions
Q1) A decrease in financial leverage would be expected to magnify the risk and the potential return of an income-producing property.
A)True
B)False
Q2) Which of the following is NOT a benefit of a sale-leaseback of land for investors?
A)It is a way of effectively obtaining 100% financing
B)The lease payments are tax deductible
C)Land cannot be depreciated for tax purposes
D)The land value may increase over the holding period
Q3) If a property has positive leverage,the owner should borrow as much as possible. A)True
B)False
Q4) One advantage of a sale-leaseback is that the lease payments are 100 percent tax deductible. A)True B)False
Q5) One benefit of leverage is that it reduces the variation in returns or losses. A)True B)False
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Chapter 13: Risk Analysis
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31 Verified Questions
31 Flashcards
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Sample Questions
Q1) A property owner may incur some downtime due to the expiration of a lease that has not been renewed.The time period that occurs before the owner can contract with a new tenant is referred to as:
A)Absentia turnover
B)Market turnover
C)Lease turnover
D)Vacancy turnover
Q2) 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
Q3) In general,real estate is usually considered more risky than bonds but less risky than stocks.
A)True
B)False
Q4) Percentage rent is common in office building leases.
A)True
B)False
Page 15
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Chapter 14: Disposition and Renovation of Income Properties
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38 Verified Questions
38 Flashcards
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Sample Questions
Q1) Disposition when dealing with real estate means which of the following?
A)The way a property fits in with its surroundings
B)Refinancing the property
C)Improving property value
D)Sale of the property
Q2) The investment foundation of a real estate investment is another name for the initial investment.
A)True
B)False
Q3) The return calculated assuming the property is held for one additional year is referred to as the:
A)After-tax cash flow from sale
B)Marginal rate of return
C)Reinvestment rate
D)None of the above
Q4) If an investor is deciding whether to sell a property,his equity buildup in the existing property should be considered as an opportunity cost.
A)True
B)False
Page 16
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Chapter 15: Financing Corporate Real Estate
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32 Verified Questions
32 Flashcards
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Sample Questions
Q1) For a large corporation with a good credit rating seeking to finance corporate real estate,the cost of a mortgage loan may be greater than the cost of unsecured corporate debt.
A)True
B)False
Q2) It is estimated that corporate users control as much as ________ percent of all commercial real estate.
A)10
B)25
C)75
D)100
Q3) Which of the following statements 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 may be able to 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
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Chapter 16: Financing Project Development
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35 Verified Questions
35 Flashcards
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Sample Questions
Q1) Why would a developer be willing to manage a completed project even after it has been sold?
A)The developer knows the project better than other management companies and,therefore,could manage the property more efficiently
B)The developer could profit from the lucrative management fees being charged by management companies
C)Knowledge of the tenant's needs and the current leasing market might give the developer better insight with respect to future developments
D)All of the above
Q2) Lenders typically finance the development of a project as a percentage of completed appraised value,including the price of the site.
A)True
B)False
Q3) In general,developers must get a construction loan before they can line up permanent (long-term)financing that will be used once the project is complete and being operated with tenants.
A)True
B)False
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Chapter 17: Financing Land Development Projects
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Sample Questions
Q1) The loan submission package for a land development project must include project information,market financial data,government and regulatory information,legal documentation and emergency contingency plans.
A)True
B)False
Q2) The release price is the dollar amount of a loan that must be repaid when a lot is sold.
A)True
B)False
Q3) The release schedule refers to a schedule of expiring leases for existing tenants.
A)True
B)False
Q4) If a developer constructs some speculative buildings in hopes of identifying purchasers after completion,this is referred to:
A)Feasibility construction
B)Turnkey basis
C)Build to suit basis
D)Optional construction
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Chapter 18: Structuring Real Estate Investments:
Organizational Forms and Joint
Ventures
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31 Verified Questions
31 Flashcards
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Sample Questions
Q1) When one investor receives cash flow to achieve a certain IRR before splitting the remaining cash flow it is referred to as:
A)IRR lookback
B)IRR preference
C)Preferred IRR
D)Adjusted IRR
Q2) Capital accounts are debited for cash contributed to the partnership and credited for cash distributed to the partner.
A)True
B)False
Q3) Tax losses cannot be allocated to partners in a syndication.
A)True
B)False
Q4) A general partner is personally liable for the debts of the partnership whereas a limited partner has "limited liability" like shareholders in a corporation.
A)True
B)False
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Chapter 19: The Secondary Mortgage Market: Pass-Through Securities
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37 Verified Questions
37 Flashcards
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Sample Questions
Q1) In 2008,Fannie Mae was spun off in an initial public offering as a private company.
A)True
B)False
Q2) An optional delivery commitment,gives Fannie Mae the right (but not the obligation)to purchase mortgage loans from originators.
A)True
B)False
Q3) Which of the following is FALSE regarding mortgage-backed bonds (MBBs):
A)Their issuer retains ownership of mortgages
B)Their maturity is indefinite at issuance
C)They are issued with fixed coupon rates
D)They are usually underwritten by investment banking companies
Q4) Which of the following is NOT a risk for mortgage-backed securities?
A)Default risk
B)Delayed payment risk
C)Pass-through risk
D)Interest rate risk
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Chapter 20: The Secondary Mortgage Market: Cmos and
Derivative Securities
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Sample Questions
Q1) The CMO is a considered a marketing innovation as well as a financial innovation,because it is the first security in the secondary mortgage market to have run a prime-time television ad.
A)True
B)False
Q2) CDOs often include "B" notes,mezzanine debt and preferred equity as investments.
A)True
B)False
Q3) From the issuer's perspective,the use of MBBs and MPTBs should be viewed as a method of debt financing.
A)True
B)False
Q4) 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
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Chapter 21: Real Estate Investment Trusts Reits
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Sample Questions
Q1) At least 95 percent of the value of a REIT's assets must consist of real estate assets,cash,and government securities.
A)True
B)False
Q2) 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
Q3) REITs can sometimes capitalize rather than lease certain expenditures to increase FFO.
A)True B)False
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Chapter 22: Real Estate Investment Performance and Portfolio Considerations
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33 Verified Questions
33 Flashcards
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Sample Questions
Q1) One would see the greatest amount of diversification from two securities that are:
A)Positively correlated
B)Negatively correlated
C)Not correlated
D)Perfectly correlated
Q2) The NCREIF index measures the investment performance of real estate by using actual sale prices.
A)True
B)False
Q3) 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.
A)True
B)False
Q4) The optimal portfolio is obtained by combining a group of securities which,by themselves,offer the highest returns with the lowest risk.
A)True
B)False
Page 24
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Chapter 23: Real Estate Investment Funds: Structure, performance,
benchmarking, and Attribution Analysis
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34 Verified Questions
34 Flashcards
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Sample Questions
Q1) Opportunity funds are designed for long-term investment and,accordingly,will generally maintain ownership of acquired properties for several years.
A)True
B)False
Q2) ________ funds take on risks by conducting ground up development projects that expose the funds to additional construction risks,such as entitlements,construction delays,cost overruns,complex JV management issues,and so on,and use a relatively high degree of financial leverage.
A)Core
B)Opportunity
C)Value-add
D)Core Plus
Q3) ________ funds mostly invest in existing operating properties that are stable,with low vacancy and current cash flows and are located in major metropolitan areas.
A)Core
B)Core plus
C)Value-Added
D)Opportunistic
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