Real Estate Economics
Test Questions
Course Introduction
Real Estate Economics explores the economic principles and analytical tools applied to real estate markets, examining how factors like supply and demand, interest rates, demographics, government policies, and urban development affect property values and investment decisions. The course covers market dynamics in residential, commercial, and industrial real estate, as well as the role of real estate in the broader economy. Students learn to analyze trends, assess real estate cycles, evaluate policy impacts, and understand the decision-making processes of various market participants.
Recommended Textbook
Real Estate Finance Theory and Practice 6th Edition by Terrence M. Clauretie
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Page 2
Chapter 1: Finance and Real Estate
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Sample Questions
Q1) The most accurate definition of finance is:
A) the study of the allocation of resources
B) the process of maximizing profits through money transfers
C) the study of the transfer of money and credit between individuals,businesses,and governments
D) the one you are about to marry
Answer: C
Q2) The following are insured by the FDIC:
A) commercial banks
B) savings and loan associations
C) insurance companies
D) credit unions
E) a and b
Answer: E
Q3) The definition of real property includes:
A) only that property that can be seen and touched
B) all of the rights and privileges of the use of real estate
C) only land and buildings,the rights and privileges cannot be included
D) a and c
Answer: B
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Chapter 2: Money Credit and the Determination of Interest
Rates
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Sample Questions
Q1) Liquidity,income,and price-anticipation effects:
A) are related to the money supply increase
B) are related to the interest rate increase
C) are related to the bond market increases
D) operate autonomously in the market and are not related to each other
Answer: A
Q2) Economists agree:
A) inflation stops growing after it reaches double digits
B) inflation cannot continue year after year
C) inflation,especially if it is consistent year after year,creates expectations of future inflation
D) inflation doesn't play an important role in the determination of market interest rates
Answer: C
Q3) Non-callable bonds:
A) have a callability risk attached to them
B) are less desirable than callable bonds
C) can be called prior to maturity if holders are given a 120-day notice
D) will have a lower yield than identical callable bonds
Answer: D
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Chapter 3: Finance Theory and Real Estate
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Sample Questions
Q1) The value of mortgage-backed securities changes as a result which most important factor?
A) the maturity date for the security
B) the Dow Jones Industrial Average Index
C) volatility in the interest rates
D) the change in market interest rates
Answer: D
Q2) For commercial property,a larger down payment is often required; this:
A) increases the value of the put option
B) increases the value of the call option
C) reduces the value of the call option
D) reduces the value of the put option
Answer: D
Q3) Cash flows associated with servicing rights:
A) have little risk since the servicing fees are related to all payments
B) are not affected by market rates
C) have value and can be sold
D) are composed of the fees less the discount rate
Answer: C
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Page 5
Chapter 4: The Early History of Residential Finance and
Creation of the Fixed Rate Mortgage
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Sample Questions
Q1) You need a 30-year fixed-rate mortgage for $100,000,monthly payments.One lender offers 7.5% with no discount points while another lender offers 7.125% with some points.What amount of points on the second loan would give the loans the same APR?
A) no points necessary - the 30-year amortization will force the APRs to be equal
B) 3.65 points
C) 3.75 points
D) with different contracts rates these loans cannot have the same APR
Q2) Suppose you take an FRM of $150,000 at 7.5% for 30 years.If you repay the mortgage at the end of year four,how much total interest did you pay?
A) $6,209
B) $44,134
C) $50,343
D) $227,575
E) cannot be determined
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Chapter 5: Modern Residential Finance
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Sample Questions
Q1) Assumable loans and carry backs:
A) have totally replaced FHA and VA financing
B) are examples of what is termed creative financing
C) are short-term loans with balloon payments
D) are two forms of FHA financing
Q2) Disintermediation refers to:
A) the withdrawal of funds from financial institutions by depositors in excess of deposits
B) financial institutions withdrawing from the Federal Reserve System
C) financial institutions shifting from FHA loans to conventional loans
D) none of the above
Q3) Negative amortization refers to the fact that:
A) the balance of a loan grows larger rather than smaller
B) the amount of interest on a loan becomes larger rather than smaller
C) the reduction in the value of a property falls below the loan amount
D) none of the above
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Chapter 6: Alternative Mortgage Instruments
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Sample Questions
Q1) Your ARM contract is $110,000,monthly payments for 30 years.Your contract rates are 4.50% and 6%,respectively,for the first two years.What is your payment for year two?
A) $557.35
B) $656.93
C) $648.86
D) cannot be determined
Q2) A PLAM has the following terms: loan amount: $128,000,real interest rate: 5.50%, 30-year term,2.50 discount points,annual payments adjustments,monthly payments,observed inflation EOY1: -3%,observed inflation EOY2: 4%.What is the monthly payment for the second year?
A) $510.52
B) $714.59
C) $715.28
D) $704.97
E) $733.16
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Chapter 7: Financing and Property Values
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Sample Questions
Q1) Mortgage Revenue Bonds,a class of bonds called municipals,are issued by state and local governments and:
A) allow the government to purchase property for government use
B) provide an interest rate at a higher rate than corporate bonds
C) provide interest that is free of federal taxation
D) provide interest that is free from capital gains taxation
Q2) The term "carryback financing" refers to:
A) a motivated seller who takes back a note at a low rate in order to sell the property
B) a situation where the lender takes the property back after a default on the loan
C) an assumable loan in which a lender waives the discount points in order to complete the loan transaction
D) an assumable FHA loan
Q3) The term "cash equivalent" value refers to:
A) the value of a residential property while it is listed
B) the amount of discount points charged by a lender
C) the value of a property if sold for all cash
D) the cash equivalency of the mortgage on a property
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9
Chapter 8: Federal Housing Policies: Part 1
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Sample Questions
Q1) A loan that involves regular increases in payment at a fixed rate,is called a(n):
A) adjustable rate mortgage
B) graduated payment mortgage
C) buy down mortgage
D) shared appreciation mortgage
Q2) After the securitization of residential mortgages,the relative yield that lenders require has
A) lowered
B) risen
C) been about the same
D) risen for higher value homes,but lowered for lower value homes
Q3) What conclusions can you draw about the influence of housing inflation on the annual cost of housing?
A) Housing inflation increases the cost of housing
B) Housing inflation increases the cost of housing by a very small amount
C) Housing inflation reduces the cost of housing
D) Housing inflation has almost no effect on the cost of housing
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Chapter 9: Federal Housing Policies: Part 2
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Sample Questions
Q1) The practice of designating an area in which a lender will not make a conventional mortgage loan is known as:
A) redlining
B) blockbusting
C) FHAing
D) zoning
Q2) Which of the following are exempt from the provisions (except for racial discrimination)of the Fair Housing Act of 1968?
A) an owner-occupant who does not employ a broker
B) religious organizations
C) private clubs that do not operate commercially for a profit
D) all of the above
E) none of the above
Q3) Which of the following statements is incorrect in relation to the ECOA?
A) non-discriminatory firms will attain a competitive advantage
B) lenders are engaged in little discrimination
C) the ECOA has had a significant impact on making credit available
D) the ECOA is a valuable statement about principles of fair lending practices
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Chapter 10: The Secondary Mortgage Market
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Sample Questions
Q1) 10-20.Valuing mortgages on a frequent basis as a result of the changes in interest rates is referred to as:
A) tailor
B) mark-to-market
C) tranches
D) SWAPs
Q2) 10-11.FNMA and FHLMC are:
A) official departments of the U.S. government
B) official branches of the U.S. government
C) corporations originated through federal legislation
D) all of the above
Q3) Fannie Mae supports the secondary mortgage market by:
A) issuing mortgage related securities
B) purchasing mortgages
C) selling mortgages
D) issuing mortgage related securities and buying mortgages
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Page 12
Chapter 11: Valuation of Mortgage Securities
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Sample Questions
Q1) 11-18.If the value of the IO strip is most sensitive to changes in the market rate when this rate is between 100 and 300 basis points below the coupon on the pool,then those investors who desire to obtain the hedging benefits of the IO strip should purchase:
A) strips of passthroughs 100-300 points below the market rate
B) only strips of passthroughs at the market rate
C) strips of passthroughs 100-300 points above the market rate
D) only PO strips 100-300 points below the market rate
Q2) A graph of the PSA model for the prepayment rate on a pool of mortgages will produce a spike in the _________ year of cash flows:
A) second
B) third
C) fourth d fifth
E sixth
Q3) Variables that affect the sinking fund balance include:
A) the prepayment rate on mortgages in the pool
B) the reinvestment rate on the sinking fund
C) the initial overcollateralization
D) the default rate
E) all of the above
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Page 13
Chapter 12: Controlling Default Risk Through Borrower
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Sample Questions
Q1) 12-33.Which type of note limits the lender's remedy to the value of the residence that serves as collateral?
A) non-recourse note
B) recourse note
C) obligatory note
D) none of the above
Q2) 12-13.The provisions of a deed of trust outline the rights and obligations of the:
A) lender
B) borrower
C) trustor
D) all of the above
Q3) 12-29."Significant compensating factors," after dual qualifying ratios have been computed in respect to gross income,include:
A) conservative attitude toward credit
B) at least 10% investment in the property
C) renting out use of the property
D) both a and b
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Chapter 13: Loan Origination, Processing, and Closing
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Sample Questions
Q1) The utilization of a non-certified or non-licensed appraiser in connection with a federally related mortgage transaction can result in what fine for the first and subsequent violations:
A) $25,000; $50,000
B) $20,000; $40,000
C) $30,000: $45,000
D) $15,000; $30,000
Q2) 13-35.The record of fees,charges,and payments at the closing is called:
A) commitment
B) truth-in-lending disclosure
C) deed
D) settlement statement
Q3) 13-43.FHA loans can be refinanced and cash can be obtained on owner occupied properties if the loan as a percent of the acquisition cost is no more than:
A) 50
B) 65
C) 75
D) 85
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Q1) Two methods of foreclosure include:
A) power-of-sale and statutory
B) power-of-sale and judiciary
C) judiciary and statutory
D) none of the above
Q2) Foreclosure is a process that:
A) returns the property to a borrower when the loan is paid off
B) is consistent in all states as required by federal law
C) is exercised by a buyer of the property
D) none of the above
Q3) An equitable right of redemption:
A) is allowed after foreclosure
B) allows a delinquent mortgagor to prevent foreclosure by paying delinquent interest and other costs
C) is the same as a statutory right of redemption
D) none of the above
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Chapter 15: Value, Leverage, and Capital Structure
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Q1) Using the formula ROE = [NOI - rD] /Equity,the term positive leverage implies that the return On equity is ________________ than the return on assets if the cost of debt "r" is ___________ than ROA where ROA = NOI/EQUITY.
A) greater,less
B) less,greater
C) minimal,maximized
D) a and b
E) a and c
Q2) In any property cash flows are derived from two avenues:
A) operating cash flows
B) from sale of property
C) management costs
D) a and c
E) a and b
Q3) Financial leverage is:
A) the left side of the balance sheet
B) the use of debt to finance real estate
C) the use of equity to finance real estate
D) a and b
E) b and c
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Chapter 16: Federal Taxation and Real Estate Finance
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Sample Questions
Q1) 16-16.The following tax law has an effect on the value of real estate:
A) capital gains treatment
B) length of depreciation for real property
C) passive loss limitation
D) all of above
E) none of above
Q2) For a real estate partnership investment the "at-risk" amount is:
A) the investor's cash contribution
B) tax basis of any property contributed
C) non-recourse debt borrowed from the partnership
D) a plus b plus c
E) a plus b
Q3) Alternative Minimum Tax rules were established in:
A) 1978
B) 1986
C) 1991
D) 1993
E) none of the above
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18
Chapter 17: Sources of Funds for Commercial Real Estate
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Sample Questions
Q1) Thrifts specialize in:
A) residential loans
B) multi-family properties
C) commercial properties
D) none of the above
Q2) The primary institutional investors in equity real estate are:
A) pension funds
B) federal credit agencies
C) unions
D) none of the above
Q3) Insurance companies invest primarily in:
A) CMOs
B) commercial mortgages
C) residential mortgages
D) none of the above
Q4) The largest supplier of commercial real estate debt is:
A) state and local retirement funds
B) commercial banks
C) thrifts
D) pension funds
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Chapter 18: Acquisition, Development, and Construction Financing
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Sample Questions
Q1) 18-22.For an ADC loan the lender's yield can be determined by finding the rate which equates:
A) the future value of the disbursements to the present value of the loan repayment
B) the present value of the disbursements to the present value of the loan repayment
C) the present value of the disbursements to the future value of the loan repayment
D) the future value of the disbursements to the future value of the loan repayment
Q2) 18-46.When improvements in the infrastructure are financed by additional property taxes applied to properties in the geographical area of the development it is termed:
A) density bonus
B) tax-increment financing
C) senior financing
D) partial release provision
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Chapter 19: Permanent Financing of Commercial Real
Estate Properties
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Q1) 19-13.In an equity participation loan the lender offers a lower rate on the loan in exchange for:
A) a share of the cash flows from operations
B) a share of appreciation in the property
C) either a or b or both
D) title to the property
Q2) 19-11.The following is/are advantages of equity participation agreements for the borrower:
A) reduced risk to the owner
B) retain ownership of the property
C) lower interest obligation
D) all of the above
Q3) A lease that is a substitute for debt financing is:
A) operating lease
B) capital lease
C) financing lease
D) sale-leaseback lease
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Page 21
Chapter 20: Ownership Structures for Financing and Holding Real Estate
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Sample Questions
Q1) The following is a type of REIT:
A) equity
B) mortgage
C) hybrid
D) a and b
E) all of the above
Q2) 20-35.The following is one of several criteria a REIT must meet so as to be a tax-free entity:
A) derive at least seventy-five percent of income from real estate related investments
B) retain at least one-half of all income
C) can not at any time sell off real estate assets
D) none of the above
Q3) 20-29.The following is not an advantage of the limited partnership form of ownership of real estate:
A) avoidance of double taxation
B) limited liability of the partners
C) access to large capital markets
D) none of the above
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Chapter 21: Real Estate in a Portfolio Context
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Q1) 21-16.The major risks associated with investment in real estate include:
A) marketability risk
B) information risk
C) residual risk
D) none of the above
E) all of above
Q2) Real Estate Investment Trusts (REITs):
A) invest in real estate related assets
B) issue stock for purchase by investors
C) may invest in mortgages
D) all of the above
Q3) The amount of risk reduction that occurs through the process of diversification is determined by:
A) the extent to which the returns on the assets are correlated
B) the standard deviations of the assets
C) the returns on the assets
D) the expertise of the portfolio manager
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Chapter 22: Liability, Agency Problems, Fraud, and Ethics in Real Estate Finance
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Q1) One who intentionally causes injury to another is subject to liability to the other for that injury,if this conduct is generally culpable and not justifiable under the circumstances.This is referred to as:
A) prima facia tort
B) breach of contract
C) fraud
D) strict liability
Q2) A lender that has a property taken because of its use in drug transactions can use a defense referred to:
A) due diligence
B) good faith dealings
C) breach of contract
D) innocent-owner
Q3) Making of a promise with no intention of fulfilling it is referred to as:
A) nondisclosure fraud
B) promissory fraud
C) tort
D) fiduciary
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