Real Estate Capital Markets
Practice Exam
Course Introduction
Real Estate Capital Markets explores the structures, instruments, and dynamics of financial markets that fund real estate development, investment, and operations. This course covers both public and private capital sources, such as commercial mortgage-backed securities (CMBS), real estate investment trusts (REITs), equity and debt financing, and alternative investment vehicles. Students will analyze the roles of institutional investors, risk-return tradeoffs, securitization, and the impact of financial regulation. Through case studies and real market data, learners gain an understanding of how capital market trends shape real estate values, project viability, and broader economic cycles.
Recommended Textbook
Real Estate Finance and Investments 13th Edition by William Brueggeman
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537 Verified Questions
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Chapter 1: Real Estate Investment: Basic Legal Concepts
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Sample Questions
Q1) Which of the following is NOT true in regard to a tax sale?
A) An accurate and complete description of the property is required to be posted for possible purchasers before the sale.
B) The property owner may not have had a court appearance through due process,thus creating a cloud on the title.
C) The line of authority for the sale may not be clear.
D) The purchaser is usually expected to pay all delinquent taxes at the time of sale.
Answer: A
Q2) Which of the following is NOT a good method of title assurance?
A) Seller provides a warranty in the deed.
B) An attorney searches recorded documents.
C) Title insurance is purchased.
D) Seller provides a quitclaim deed.
Answer: D
Q3) A fee simple estates is a type of freehold estate.
A)True
B)False
Answer: True
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3
Chapter 2: Real Estate Financing: Notes and Mortgages
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Sample Questions
Q1) A property is encumbered as follows: First mortgage,A $250,000
Second mortgage,B $40,000
Third mortgage,C $10,000
How much can mortgagee B pay for the property at a foreclosure sale without having to raise additional funds?
A) $290,000
B) $40,000
C) $300,000
D) $50,000
Answer: A
Q2) Which of the following statements is true about foreclosure?
A) In judicial foreclosure,property subject to attachment and execution is limited to the mortgaged property
B) If the sale of the mortgaged property realizes a price above the claims of the mortgage and expense of the sale,the balance goes to the mortgagor
C) Redemption can be accomplished by paying 95% of the debt,interest and costs due to mortgage
D) None of the above
Answer: C
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4
Chapter 3: Mortgage Loan Foundations: The Time Value of Money
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Sample Questions
Q1) The internal rate of return is the good feeling you get inside when you earn a return on your investment.
A)True
B)False
Answer: False
Q2) You always see an ordinary annuity used in business and never see an annuity due used in business.
A)True
B)False
Answer: False
Q3) Begin with a single sum of money at period 0.First,calculate a future value of that sum at 12.01%.Then discount that future value back to period 0 at 11.99%.In relation to the initial single sum,the discounted future value:
A) is greater than the original amount.
B) is less than the original amount.
C) is the same as the original amount.
D) cannot be determined with the information given.
Answer: A
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Chapter 4: Fixed Interest Rate Mortgage Loans
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Sample Questions
Q1) The APR for a loan assumes it is prepaid after ten years.
A)True
B)False
Q2) In comparison to the first month's payment of a CAM,the first month's payment of a CPM:
A) ishigher.
B) islower.
C) thesame.
D) cannot be determined with this information.
Q3) Which one of the following is TRUE about Prepayment penalties:
A) They are never used with residential mortgages
B) They lower the effective cost if the loan is repaid before maturity
C) They are equivalent to charging additional points for the loan
D) They are not included in the APR calculation
Q4) Inflation makes very little difference to lenders of and investors needing money.
A)True
B)False
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6
Chapter 5: Adjustable and Floating Rate Mortgage Loans
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Q1) ARMs were developed because lenders were tired of offering a limited selection of loan alternatives to borrowers.
A)True
B)False
Q2) ARMs eliminate all the lender's interest rate risk.
A)True
B)False
Q3) PLAMs have been very popular with lenders.
A)True
B)False
Q4) The floor of an ARM is the maximum reduction of payments or interest rates allowed.
A)True
B)False
Q5) Negative amortization reduces the principal balance of a loan.
A)True
B)False
Q6) The default risk of a FRM is higher than the default risk of an ARM. A)True
B)False
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Chapter 6: Mortgages: Additional Concepts, Analysis, and Applications
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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.Assume 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) Use the information in problem 1,except assume that the loan will be repaid in 5 years.What is the incremental cost of borrowing the extra money?
A) 13.95%
B) 13.67%
C) 14.42%
D) 12.39%
Q3) Homeowners should not borrow refinancing costs because the effective rate of refinancing will be higher.
A)True
B)False
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Chapter 7: Single-Family Housing: Pricing, Investment, and Tax Considerations
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Sample Questions
Q1) Mortgage interest and property taxes are deductible for federal income tax purposes for homeowners.
A)True
B)False
Q2) Residential appraisers use only the sales comparison approach to determine value of the homes they appraise.
A)True
B)False
Q3) Housing futures contracts allow investors to speculate on changes in home prices without actually owning a home.
A)True
B)False
Q4) The influence on property values brought about by a net benefit related to the value of public goods less their cost is referred to as:
A) a capital gain
B) a capital loss
C) thecapitalization - effect
D) thedepreciation effect
Page 9
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Chapter 8: Underwriting and Financing Residential Properties
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Sample Questions
Q1) FTL requires that the lender disclose an estimated cost of financing within three days of loan application.
A)True
B)False
Q2) One of the objectives of RESPA was to disclose kickbacks and unearned fees on the settlement sheet.
A)True
B)False
Q3) RESPA had three specific objectives.Which of the following was NOT one of those objectives?
A) More effective advance disclosure of settlement costs.
B) More informative of the cost of credit.
C) Elimination of kickbacks and unearned fees.
D) A reduction in the amount of escrow placed in accounts for homeowners.
Q4) Which of the following is the main objective of FTL legislation?
A) More effective advance disclosure of settlement costs
B) More informative disclosure of the cost of credit
C) Elimination of kickbacks and unearned fees
D) A reduction in the amount of escrow placed in accounts for homeowners
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Chapter
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Sample Questions
Q1) Which does the term anchor tenant usually refer to?
A) Someone who leases space at a marina
B) The largest tenant in an office building
C) A department stores in a mall
D) The tenants who pay the highest rent in a mall
Q2) Which of the following leads to rent premiums?
A) Apartments on periphery of site,higher floors with no elevators
B) Second or third levels in multi-level malls
C) Middle floors in office building
D) Apartments on higher floors with elevators
Q3) If a lease has free rent earlier in its term,its default risk might be considered slightly higher.
A)True
B)False
Q4) A clause which requires a tenent in retail space to achieve a certain level of sales of the lease will be terminated is referred to as a
A) Kickout clause
B) Termination clause
C) Option clause
D) Santa clause
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Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital
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Sample Questions
Q1) Which of the following expenses would NOT be included in an operating statement used to calculated net operating income in the income approach to value?
A) Reserves for replacement
B) Maintenance
C) Real estate taxes
D) Capital additions
Q2) A property produces a first-year net operating income of $24,000.Because of the long economic life of the building,the income is considered as a perpetuity that will grow by 2.5% per year.Using a discount rate of 9.5%,estimate that property value.
A) $276,968
B) $252,632
C) $200,000
D) $342,857
Q3) Total possible income less any vacancy is __________.
A) EGI
B) PGI
C) NOI
D) GIM
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Chapter 11: Investment Analysis and Taxation of Income Properties
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Sample Questions
Q1) Which of the following is FALSE regarding expense stops?
A) Expense Stops protect owners against increases in expenses
B) Expense stops are usually based on expenses during the first term of the lease
C) Expense Stops can pass through expense savings to tenants
D) Expense Stops provide some protection against inflation
Q2) A property produces an after tax internal rate of return of 12.24%.If the investor has a marginal tax rate of 31%,what is the before-tax equivalent yield?
A) 8.45%
B) 11.39%
C) 16.03%
D) 17.74%
Q3) When calculating the adjusted IRR the cash flows are always discounted to a present value at a safe rate.
A)True
B)False
Q4) Property held as a personal residence cannot be depreciated.
A)True
B)False
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Chapter 12: Financial Leverage and Financing Alternatives
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Q1) When the internal rate of return on an investment increases as the loan-to-value ratio increases,positive leverage exists.
A)True
B)False
Q2) When constructing a convertible mortgage,the lender will require a contract interest rate equal to or greater than the market rate on a similar mortgage without conversion option.
A)True
B)False
Q3) If properly constructed and assuming everything but the structure of the interest payment is equal,which of the following loans would typically have the highest first-year debt service?
A) Accrual loan
B) Conventional loan
C) Interest-only loan
D) Participation loan
Q4) If a property has positive leverage,the owner should borrow as much as possible.
A)True
B)False
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Chapter 13: Risk Analysis
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Sample Questions
Q1) When an investor does an investigation when considering acquisition of a property,this is referred to as:
A) Investigation
B) Risk analysis
C) Due diligence
D) Acquisition analysis
Q2) The term "financial risk" refers to the probability of interest rates changing.
A)True
B)False
Q3) Risk due to potential tax law changes is referred to as:
A) Business risk
B) Financial risk
C) Legislative risk
D) Tax risk
Q4) When sales exceed a breakpoint sales volume in a retail lease with percentage rent,the additional rent is referred to as:
A) Retail rent
B) Participation rent
C) Overage rent
D) Sales rent
Page 15
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Chapter 14: Disposition and Renovation of Income Properties
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Sample Questions
Q1) In general,equity buildup tends to lower the marginal rate of return of holding a property.
A)True
B)False
Q2) An investor purchased a property expecting to receive a 14% rate of return.However,the rate of return on the property over a 5 year holding period turned out to be only 11.5%.Therefore,the property should be sold.
A)True
B)False
Q3) The benefits of equity buildup in a property are lessened over time because with an amortizing mortgage,an investor will lose some tax benefits each year as the interest portion of the payments decreases.
A)True
B)False
Q4) 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
16
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Chapter 15: Financing Corporate Real Estate
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Sample Questions
Q1) When doing a sale versus lease analysis,how should the residual value of the property be estimated?
A) Assume it is worthless.
B) Set it equal to the book value of the property.
C) Assume that it is equal to the original purchase price.
D) Assume it is equal to the market value of the real estate.
Q2) Which of the following tax law changes has reduced the incentive for individuals to lease to corporations as a part of the Tax Reform Act of 1986?
A) Depreciation lives were lengthened
B) The highest marginal tax rate for corporations is much lower than the highest marginal tax rate for individuals
C) Individuals are subject to limitations on "passive" losses used to offset other taxable income
D) Income from corporations are no longer double taxed
Q3) If a company's space requirements are far less than what is optimal to develop on a given site,leasing would tend to be more favorable.
A)True
B)False
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Chapter 16: Financing Project Development
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Q1) Commitments for construction financing are usually contingent on commitments for permanent financing.
A)True
B)False
Q2) The demand for retail space should be examined in terms of the characteristics of the tenants demand in a given market.
A)True
B)False
Q3) Which one of the common contingencies is usually included with a permanent financing agreement?
A) Completion date for construction phase.
B) Minimum rent-up requirements
C) Materials used in construction phase
D) Cleanliness of work area
Q4) Loans made under the assumption that markets will turn around are referred to as spec loans.
A)True
B)False
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Page 18
Chapter 17: Financing Land Development Projects
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Q1) Each parcel of land in a new development is selling for $15,000 and the total project revenue is estimated to be $5,000,000.The project lender has stated that the loan should be paid off when 80% of the total project revenue has been earned.The total loan amount is $3,500,000.What is the release price for each parcel?
A) $8,400
B) $13,215
C) $18,750
D) None of the above
Q2) The release schedule refers to a schedule of expiring leases for existing tenants.
A)True
B)False
Q3) Which of the following costs should NOT be included in a net present value analysis of a land development project?
A) Land purchase price
B) Property tax
C) General overhead such as personnel costs
D) Developer's profit
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19
Chapter 18: Structuring Real Estate Investments:
Organizational Forms and Joint
Ventures
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Q1) How should interest prepayments (including points)for income producing real estate be handled for tax purposes?
A) They should be expensed over the first year
B) They should be amortized over a period of no less than 60 months
C) They should be amortized over the life of the loan
D) They should be capitalized and deducted once the loan is paid off
Q2) Tom invested $20,000 in a limited partnership.His share of liabilities from mortgage debt was initially $45,000.The property suffered a loss in income during the first year,of which Tom's share was $5,000.However,in years two through four income allocated from the account equaled a total of $9,000 ($3,000 per year).The reduction in debt at the end of year 4 from amortization of the loan is equal to $1,100.What is the balance of Tom's capital account at the end of year 4?
A) -$9,900
B) $24,000
C) $69,000
D) $70,100
Q3) Tax losses can not be allocated to partners in a syndication.
A)True
B)False
Page 20
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Chapter 19: The Secondary Mortgage Market: Pass-Through Securities
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Q1) The investment rating for mortgage backed Bond depends on all but which of the following?
A) Appraised value and DCR.
B) Interest rates in mortgage pool.
C) Extent of over collateralization.
D) Initial price paid for the security.
Q2) When a pass-through security investor makes repetitive requests of a mortgagor it is referred to as a nuisance call.
A)True
B)False
Q3) The Government National Mortgage Association (GNMA)was organized to perform three principal functions.Which of the following was NOT a function of GNMA?
A) Provide special assistance lending in support of federal programs
B) Manage and liquidate mortgages previously acquired by FNMA
C) Manage all secondary mortgage market operations
D) Provide a guarantee for FHA - VA mortgage pools that would provide a guarantee for mortgage backed securities
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Page 21
Chapter 20: The Secondary Mortgage Market: Cmos and
Derivative Securities
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Q1) From the issuer's perspective,the use of MBBs and MPTBs should be viewed as a method of debt financing.
A)True
B)False
Q2) CDO managers raises capital through the issuance of rated CDO debt and equity to purchase an undiversified pool of credit instruments.
A)True
B)False
Q3) Which of the following is FALSE concerning a planned amortization class (PAC)tranche?
A) It has the greatest degree of cash flow certainty.
B) It receive variable payments.
C) Payments are received over predetermined period of time.
D) Payments are received under a range of prepayment scenarios.
Q4) If a premium is paid on a CMO issue (at the time of issue),yields will increase as prepayment rates accelerate.
A)True
B)False
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Chapter 21: Real Estate Investment Trusts Reits
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Sample Questions
Q1) REITs must be passive investments with external advisors.
A)True
B)False
Q2) 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
Q3) The early growth of the REIT industry in the 1970s was mainly attributed to which of the following?
A) Popularity of mortgage trusts.
B) Deregulation of the industry.
C) Declined performance of other investments.
D) Increased value of real property throughout the country.
Q4) Usually ground leases are for relatively short periods of time.
A)True
B)False
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Chapter 22: Real Estate Investment Performance and Portfolio Considerations
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Q1) Much like the securities markets,there is a large,centralized collection of real estate transactions and operating income data.
A)True
B)False
Q2) Both levered and unlevered properties are included in the FRC Property Index.
A)True
B)False
Q3) The FRC Property Index can be characterized by all of the following except:
A) theindex includes only properties with no outstanding mortgage debt. B) theinformation used in compiling the index is voluntarily contributed by property owners.
C) theindex reflects payments to both property managers and portfolio asset managers. D) allof the above are true.
Q4) As long as the coefficient of correlation between two stocks is less than +1,some reduction in risk can be obtained by combining the securities.
A)True B)False
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