Real Estate Finance
Exam Questions
Course Introduction
Real Estate Finance explores the principles and practices involved in financing residential and commercial real estate. The course covers topics such as mortgage markets, lending institutions, risk analysis, underwriting, the structure of various financial instruments, and the impact of government policies on real estate finance. Students will learn how to analyze investment opportunities, assess the viability of different financing options, and understand the role of securitization and secondary markets. Emphasis is placed on both theoretical frameworks and practical applications to prepare students for careers in real estate investment, development, or financial services.
Recommended Textbook
Real Estate Finance Theory and Practice 6th Edition by Terrence M. Clauretie
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473 Verified Questions
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Chapter 1: Finance and Real Estate
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Sample Questions
Q1) Financial markets can be partitioned into two categories:
A) primary and secondary
B) liquid and non-liquid securities
C) long-term and temporary instruments
D) money markets and capital markets
Answer: D
Q2) For the economy the concept that the amount of savings equals the total amount that is invested is referred to as:
A) the debt-equity ratio
B) not important to potential creditors because there are better methods of measuring credit worthiness
C) the savings-investment cycle
D) cash flow
Answer: C
Q3) Money market instruments are those that mature in less than:
A) one year
B) five years
C) ten years
D) twenty years
Answer: A
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Chapter 2: Money Credit and the Determination of Interest
Rates
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Sample Questions
Q1) The price of a bond:
A) is related to nothing. It is arbitrarily set by the corporation's Treasurer and Board of Director based on their need for profit the day the bonds are issued.
B) is inversely related to the market-required yield
C) in not a reflection of the market as a whole
D) increases (higher yields)and leads to an increase in the quantity demanded
Answer: B
Q2) In the absence of inflationary expectation,the _________________________ would equal the real rate.
A) callability risk rate
B) purchasing power risk rate
C) yield curve rate
D) risk-free rate
Answer: D
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Chapter 3: Finance Theory and Real Estate
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Sample Questions
Q1) The discounted cash flow (DCF)model of valuation does NOT contain:
A) present value
B) internal rate of return
C) the discount rate
D) amount of the cash flows
Answer: B
Q2) Options have intrinsic and market values:
A) market value is generally less than intrinsic value
B) intrinsic value is excess of the current price over the strike price for a call
C) intrinsic value is excess of the current price over the strike price for a put
D) market values and intrinsic values are the same
Answer: B
Q3) Financial intermediaries:
A) lend credit to create assets for itself
B) purchase Treasury securities
C) purchase corporate bonds
D) lend credit to suppliers to create deposit.
Answer: A
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5
Chapter 4: The Early History of Residential Finance and
Creation of the Fixed Rate Mortgage
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Sample
Questions
Q1) The mortgage constant (MC)factor calculates the payment per dollar borrowed. The numerator of the MC factor is (i)(1 + i)<sup>n</sup>.The denominator of the MC factor is:
A) (1 + i)<sup>n</sup>
B) (1 + i)<sup>n</sup> - 1
C) i<sup>n</sup>
D) i
E) there is no denominator
Q2) In Roman law the an instrument used to secure a loan was called a fiducia,which means:
A) public
B) trust
C) finance
D) secrecy
Q3) Your monthly payment on a $125,000 fixed-rate mortgage at 8% for 30 years is:
A) $917.21
B) $925.28
C) $4611.04
D) $1,000
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) 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
Q3) 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
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Chapter 6: Alternative Mortgage Instruments
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Sample Questions
Q1) The alternative mortgage instrument that has the least amount of interest rate risk for the lender is:
A) FRM
B) GPM
C) ARM
D) SAM
Q2) Suppose you have a 30-year ARM with an original loan balance of $125,000,monthly payment in year one of $874.02 and monthly payment in year two of $1003.36,and a contract rate in year two of 9%.If the loan is repaid at the end of year two,what amount of discount points should the lender have charged to earn an effective yield of 10.17%?
A) 2.85 points
B) 3.51 points
C) 3.75 points
D) 8.22 points
E) 9.18 points
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Chapter 7: Financing and Property Values
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Sample Questions
Q1) 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
Q2) 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
Q3) 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
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9
Chapter 8: Federal Housing Policies: Part 1
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Sample Questions
Q1) A loan in which the lender receives a share of the increase in value of the property in return for a reduction in the initial rate of interest,is called a(n):
A) adjustable rate mortgage
B) graduated payment mortgage
C) buy down mortgage
D) shared appreciation mortgage
Q2) Under Federal Regulation Q,the individual states were allowed to impose a ceiling on the rates that lenders were allowed to charge on mortgages.The effect of this regulation was:
A) to keep mortgage rates low and affordable
B) that mortgage money dried up in those states when interest rates rose to cyclical peaks
C) that fewer lenders were willing to finance residential mortgages in the presence of higher paying investments
D) an increase in the number of lenders willing to finance residential mortgages because of the risk-free stability of these loans
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Chapter 9: Federal Housing Policies: Part 2
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Sample Questions
Q1) What is meant by the term "taste" for discrimination?
A) firms or individuals may derive psychological,but not monetary,satisfaction from discrimination
B) firms or individuals may have been allowed to practice discriminatory procedures for so long that they have developed an almost automatic tendency toward discrimination
C) firms or individuals may require a minority group member to pass more stringent requirements before granting the loan than those that would be required for a white
D) firms or individuals may have learned that they are more likely to suffer monetary losses by lending to minority groups; therefore they benefit from being discriminatory
Q2) If a broker makes a statement that certain minority groups are moving into a neighborhood,and that property owners should sell quickly at a reduced price to avoid further depreciation,they are using an illegal practice known as:
A) blacklisting
B) redlining
C) blockbusting
D) FHAing
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Chapter 10: The Secondary Mortgage Market
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Sample Questions
Q1) 10-25.The secondary mortgage market is one in which:
A) existing mortgages are bought and sold
B) securities are offered through private brokers
C) bonds are bought but not sold
D) stock in thrifts are bought and sold
Q2) 10-40.Desirable characteristics of mortgage-related securities include:
A) credit enhancement
B) rearrangement of cash flows to meet demands of investors
C) avoiding double taxation
D) a and b
E) all of above
Q3) 10-19.Mortgage-related securities that promise payments similar to corporate bonds are called:
A) mortgage backed bonds
B) mortgage pass-through securities
C) mortgage pay-through bonds
D) credit enhancements
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12
Chapter 11: Valuation of Mortgage Securities
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Sample Questions
Q1) The cash flows of mortgage-backed bonds:
A) are designed to appear as traditional callable debt
B) promise periodic coupon payments
C) promise the return of the face value at maturity
D) b and c
E) a and c
Q2) 11-23.A security for which the cash flows derived from mortgages are rearranged in terms of amount and timing is referred to as:
A) mortgage-derivative security
B) valuation
C) interest-contingent security
D) interest rate duration
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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Chapter 12: Controlling Default Risk Through Borrower
Qualification Loan Underwriting and Contractual Relationships
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Sample Questions
Q1) Default occurs when the borrower fails to:
A) make timely payments on the loan
B) repay the principal of the loan
C) neither a nor b
D) both a and b
Q2) 12-27.The Anderson family has three children,$750 in monthly expenses,and a monthly income of $3,600.Their PITI payment will be $800.They would qualify under a:
A) FHA loan
B) VA loan
C) both a and b
D) neither a nor b
Q3) 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
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Chapter 13: Loan Origination, Processing, and Closing
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Sample Questions
Q1) 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
Q2) 13-21.The following is required in conjunction with a property appraisal for FHA/VA financing:
A) a loan application
B) a deed
C) a master certificate of reasonable value
D) mortgage banker
Q3) 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
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Page 15
Chapter
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Sample Questions
Q1) A deficiency judgment is:
A) a judgment that allows the mortgagor to redeem the property prior to foreclosure
B) a judgment against the borrower for the difference between the amount owed to a lender and the value of the property sold at a foreclosure sale
C) a judgment that allows the mortgage insurer to pursue the lender for losses in a foreclosure
D) none of the above
Q2) Title insurance:
A) insures against losses on a property due to natural disasters
B) insures against losses due government restrictions on the use of the property
C) insures against losses due to changes in interest rates
D) none of the above
Q3) 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
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Chapter 15: Value, Leverage, and Capital Structure
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Sample Questions
Q1) Positive leverage is defined as the use of debt at a cost ________________ than the return on the asset which __________________ the return on equity.
A) decreases,increases
B) less,increases
C) increases,decreases d more,decreases
E equal,increases
Q2) Investors purchase multiple properties to:
A) diversify a portfolio
B) maximize investment return
C) minimize risk
D) a and b
E) all of the above
Q3) The use of debit in income-producing real estate can alter the value of:
A) amount risk of the cash flow to bankers
B) amount of cash flows to equity investors
C) risk of cash flows to equity investors
D) b and c
E) a and b
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Chapter 16: Federal Taxation and Real Estate Finance
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Sample Questions
Q1) 16-10.The major changes incorporated in the Tax Reform Act of 1986 were:
A) lengthening the period of depreciation
B) defining real estate income as passive income
C) lowering the top marginal tax rate
D) all of the above
E) a and b
Q2) Tax law changes that would affect the value of real estate include:
A) changes in marginal rates (bracket rates)
B) changes in depreciation allowance
C) changes in capital gains rates
D) all of the above
Q3) Factors that affect the value of tax savings from depreciation include:
A) amount of depreciation
B) acceleration of depreciation
C) the marginal tax rate
D) all 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 largest supplier of commercial real estate debt is:
A) state and local retirement funds
B) commercial banks
C) thrifts
D) pension funds
Q3) The primary institutional investors in equity real estate are:
A) pension funds
B) federal credit agencies
C) unions
D) none of the above
Q4) Insurance companies invest primarily in:
A) CMOs
B) commercial mortgages
C) residential mortgages
D) none of the above
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Chapter 18: Acquisition, Development, and Construction Financing
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Sample Questions
Q1) 18-43.Release provisions written into ADC loans are mainly for the protection of the:
A) builder
B) developer
C) speculator
D) lender
Q2) 18-32.The two types of impact fees are:
A) dollar based
B) non-dollar based
C) tax based
D) a and b
E) a and c
Q3) 18-38.Instead of buying land outright developers may prefer:
A) to use subdivision trusts
B) to use partial releases
C) to use release patterns
D) to use options to purchase
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Chapter 19: Permanent Financing of Commercial Real
Estate Properties
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Sample Questions
Q1) An advantage of leasing rather than owning an asset is:
A) a firm expects to use the asset for a long period of time
B) the knowledge by all market participants of the probability that the asset may become obsolete before the end of its physical life
C) the lessor can use the tax benefits from depreciation more than the lessee
D) all of the above
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) 19-14.The investor of a property may give a portion of the increase in value of the property in exchange for:
A) a share of the cash flows
B) a lower rate of interest from a lender
C) a greater share of the title to the property
D) none of the above
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Chapter 20: Ownership Structures for Financing and Holding Real Estate
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Sample Questions
Q1) The following is NOT a factor that determines the best form of ownership for real estate:
A) use of debt financing
B) passive loss limitations
C) desire to retain earnings
D) future inflation expectations
Q2) 20-26.One advantage of sole ownership of real estate properties is:
A) no double taxation
B) property owners are not personally liable for debts in excess of $25,000
C) large portfolios of properties can be easily acquired
D) none of the above
Q3) 20-34.Transfer of interest in a Master Limited Partnership is through an instrument such as:
A) stock
B) bonds
C) assignment of beneficial units
D) almost any stock broker
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Page 22
Chapter 21: Real Estate in a Portfolio Context
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Sample Questions
Q1) A 1992 study found that at that time real estate as a percent of all pension fund assets represented about:
A) one per cent
B) four per cent
C) nine per cent
D) twenty percent
Q2) A statistical measure of risk is termed:
A) correlation coefficient
B) probability
C) variance d none of the above
Q3) 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
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23
Chapter 22: Liability, Agency Problems, Fraud, and Ethics in Real Estate Finance
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Sample Questions
Q1) The law excludes from the category of an owner or operator "a person,who,without participating in the management of a vessel or facility,holds an indicia of ownership primarily to protect his security interest in the vessel or facility." This is termed:
A) secured-lender exemption
B) strict liability
C) potentially responsible parties
D) joint and several 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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