Real Estate Finance
Test Bank
Course Introduction
Real Estate Finance explores the principles and practices involved in financing real estate investments, including residential, commercial, and industrial properties. The course covers topics such as mortgage markets, loan structures, risk analysis, valuation methods, and the impact of economic factors on real estate decision-making. Students will gain an understanding of traditional and alternative financing methods, the role of financial institutions, government regulations, and the considerations involved in underwriting real estate loans. Through case studies and practical applications, students will develop the analytical and quantitative skills necessary to assess investment opportunities and make informed financial decisions in the real estate sector.
Recommended Textbook
Real Estate Finance Theory and Practice 6th Edition by Terrence M. Clauretie
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22 Chapters
473 Verified Questions
473 Flashcards
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Chapter 1: Finance and Real Estate
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13 Verified Questions
13 Flashcards
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Sample Questions
Q1) Money markets:
A) deal strictly in cash or checks
B) deal in short-term (matures in one year or less)securities
C) deal in short-term (matures in eighteen months or less)securities
D) help corporations finance their assets with long-term bonds
Answer: B
Q2) 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
Q3) 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
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Chapter 2: Money Credit and the Determination of Interest
Rates
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20 Verified Questions
20 Flashcards
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Sample Questions
Q1) The income effect comes into play when:
A) the lower levels of income cause an increase in the demand for credit
B) the lower levels of income cause a decrease in the demand for credit
C) the higher levels of income cause an increase in the demand for credit
D) the higher levels of income cause a decrease in the demand for credit
Answer: C
Q2) The Equation of Exchange (Irving Fisher)is:
A) MV = PT
B) MP = VT
C) MT = PV
D) none of the above
Answer: A
Q3) 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
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Chapter 3: Finance Theory and Real Estate
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24 Verified Questions
24 Flashcards
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Sample Questions
Q1) A call option on a mortgage is:
A) the homeowner's right to prepay the current balance prior to its maturity
B) the lender's right to foreclose in the event of default
C) the homeowner's right to take a second mortgage out on the equity in the home
D) the lender's right to resell the mortgage to another lender
Answer: A
Q2) An asset is priced efficiently when:
A) some individuals can make excess returns using publicly available information
B) no one individual can make an excessive return with public information
C) any investor can make an excessive return with information only available to him or her
D) no investor can make an excessive return with information not available to everyone
Answer: B
Q3) 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
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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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31 Verified Questions
31 Flashcards
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Sample Questions
Q1) The Federal Deposit Insurance Corporation was enacted to insure:
A) FHA loans
B) conventional loans
C) savings accounts at depository institutions
D) the solvency of pension plans
Q2) You take a fixed-rate mortgage for $132,000 at 6.75% for 30 years,monthly payments.At the end of the second year,you unexpectedly inherit $18,000 from your now-favorite uncle.You decide to apply this $18,000 to the principal balance of your loan.How many payments are remaining after the extra lump sum payment is made?
A) 233.33
B) 126.67
C) 121.15
D) 272.00
E) none of the above
Q3) A prepayment penalty in a mortgage has the effect of ________ the APR.
A) increasing
B) decreasing C) doesn't affect
D) cannot determine the effect
Page 6
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Chapter 5: Modern Residential Finance
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4 Verified Questions
4 Flashcards
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Sample Questions
Q1) 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
Q2) A maturity mismatch occurs when:
A) over one half of all mortgage debt is held by depository institutions
B) mortgage loan interest rates are high
C) a financial institution has originated more conventional loans than government insured loans
D) there is a large difference in the maturity of a financial institutions assets and liabilities
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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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) The initial monthly payment on an adjustable rate mortgage with a balance of $100,000,an interest rate of 8.5% annually and a term of 30 years will be:
A) $3,711.78
B) $733.76
C) $768.91
D) $3,688.83
Q2) The following is NOT true of a Shared Appreciation Mortgage:
A) there are annual adjustments to the contract rate
B) there is the risk that property values may not increase as fast as general inflation
C) the borrower may not have an incentive to maintain the property d . the contract rate is generally lower than on a standard fixed rate loan
Q3) 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
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Chapter 7: Financing and Property Values
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3 Verified Questions
3 Flashcards
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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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19 Verified Questions
19 Flashcards
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Sample Questions
Q1) A loan in which the payments go up or down with movements in the index,is called a(n):
A) adjustable rate mortgage
B) graduated payment mortgage
C) buy down mortgage
D) shared appreciation mortgage
Q2) The flat-rate insurance provided by the FDIC has two faults.First,it misprizes risk.Second,
A) it penalizes large thrifts by making them subsidize smaller ones by paying the same rate
B) it forces conservatively managed thrifts to subsidize those with more risky investments
C) it is not adjustable to reflect the actual market conditions that are met by commercial financial institutions
D) the rates are too high to be paid by a thrift without a large number of depositors
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10
Chapter 9: Federal Housing Policies: Part 2
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12 Verified Questions
12 Flashcards
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Sample Questions
Q1) Which of the following methods has the federal government focused on to regulate discrimination and enforce the ECOA Act?
A) effects method
B) intent method
C) practices method
D) screening method
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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40 Verified Questions
40 Flashcards
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Sample Questions
Q1) 10-35.The agriculturally related system that merged into 37 farm credit banks was:
A) Federal Land Banks and Federal Intermediate Credit Banks
B) Federal Land Banks and Banks for Cooperatives
C) Federal Intermediate Credit Banks and Banks for Cooperatives
D) none of the above
Q2) 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
Q3) 10-34.Congress passed the Housing and Urban Development Act in:
A) 1970
B) 1968
C) 1954
D) 1953
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Chapter 11: Valuation of Mortgage Securities
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25 Verified Questions
25 Flashcards
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Sample Questions
Q1) 11-14.Servicing a pool of loans may NOT include:
A) collecting monthly payments
B) maintaining an escrow account for property taxes and hazard insurance
C) Sending notices of default to the government
D) making claims to the mortgage insurance for losses on defaulted loans
Q2) The value of a PO will fall as a net effect if:
A) the market interest rate is up and the prepayment rate is down
B) the market interest rate is down and the prepayment rate is down
C) the market interest rate is up and the prepayment rate is unchanged
D) the market interest rate is up and the prepayment rate is up
Q3) Which is true?
A) the value of a pass-through is the sum of the component IO and PO
B) if interest rates rise above the coupon rate prepayment will accelerate
C) the acceleration of prepayment will reduce the value of the PO
D) the increase in market rates reduces the discount rate used to value the PO cash flows
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Chapter 12: Controlling Default Risk Through Borrower
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41 Verified Questions
41 Flashcards
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Sample Questions
Q1) 12-16.A borrower is considered self employed if he or she has ownership in a company greater than:
A) ten percent
B) twenty-five percent
C) thirty percent
D) fifty percent
Q2) 12-37.An individual other than the borrower that assures the payment of a note is a:
A) dispensator
B) executor
C) vindicator
D) guarantor
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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43 Verified Questions
43 Flashcards
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Sample Questions
Q1) 13-31.In a loan closing the following two related but distinct transactions are completed:
A) buyer allows closing agent to prepare documents and attorney signs release
B) title of the property passes to buyer and attorney signs release
C) buyer signs a promissory note and title to property passes to buyer
D) buyer signs a promissory note and attorney signs release
Q2) 13-36.The origination,servicing,and sale of mortgage loans is called:
A) mortgage insurance
B) mortgage banking
C) desk review
D) none of the above
Q3) 13-10.The following is NOT a step in the cost approach:
A) estimate maximization for the improvement
B) estimate depreciation for the improvement
C) estimate the cost of replacing the improvement
D) estimate the value of land as vacant
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15
Chapter
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Sample Questions
Q1) 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
Q2) The FHA up-front mortgage insurance premium (MIP)is:
A) refunded if the loan is subsequently assumed
B) equal to five percent of the face amount of the loan
C) can be financed under some conditions
D) none of the above
Q3) 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
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Page 16
Chapter 15: Value, Leverage, and Capital Structure
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10 Verified Questions
10 Flashcards
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Sample Questions
Q1) Depreciation is defined as a _______________ but not a cash outlay.
A) cash expense
B) tax deductible expense
C) production cost
D) part of your cash flow
E) none of the above
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) The following is a NOT a proper list of potential commercial properties:
A) hotels,motels,urban office buildings
B) suburban office buildings,shopping malls,strip centers
C) warehouses,mini-warehouses,theme parks
D) restaurants,fast-food facilities,nursing centers
E) hospitals,apartment complexes,casinos,public schools
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17
Chapter 16: Federal Taxation and Real Estate Finance
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17 Verified Questions
17 Flashcards
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Sample Questions
Q1) Income from a limited partnership is classified as:
A) active
B) passive
C) portfolio
D) deferred
Q2) 16-15.The following will negatively affect real estate as a tax shelter:
A) extension of the depreciation period
B) introduction of a lower rate on capital gains
C) elimination of passive loss limitation
D) all of the above
E) none of the above
Q3) 16-14.A tax credit is given for investing in:
A) rehabilitating historic structures
B) personal residence for disabled people
C) low-income housing
D) all of the above
E) a and c
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Chapter 17: Sources of Funds for Commercial Real Estate
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Sample Questions
Q1) The primary institutional investors in equity real estate are:
A) pension funds
B) federal credit agencies
C) unions
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) Insurance companies invest primarily in:
A) CMOs
B) commercial mortgages
C) residential mortgages
D) none of the above
Q4) Thrifts specialize in:
A) residential loans
B) multi-family properties
C) commercial properties
D) none of the above
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Chapter 18: Acquisition, Development, and Construction Financing
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Sample Questions
Q1) 18-17.Construction loans:
A) generally,are final type of financing prior to "takeout" loan
B) are generally short term
C) have interest payments that are variable and deferred and "financed" by the lender
D) all of the above
Q2) 18-24.The purpose of an option is:
A) to exercise a lease on the property
B) to be able to purchase the land at a future time
C) to secure land without securing immediate financing
D) both b and c
Q3) When a construction loan is made and the seller's note has been subordinated:
A) the construction lender will have a junior position in the case of default
B) the seller will have a junior position in the case of default
C) the construction lender will have a senior position in the case of default
D) both b and c
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Chapter 19: Permanent Financing of Commercial Real
Estate Properties
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19 Verified Questions
19 Flashcards
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Sample Questions
Q1) 19-10.Multi-site securitization involves the following except:
A) a pool of facilities are net leased to the tenant
B) a third party entity is established to build the facilities and repay debt backed by the properties and the rental receivables
C) the real estate is conveyed to the third party financier
D) more desirable by the tenant than having the developer finance each site separately if the funds are less costly
Q2) The seller-lessee cannot account for the transaction as a sale of the property if:
A) the seller-lessee provides non-recourse financing for all or a portion of the sales price
B) the seller-lessee is not relieved of any existing debt on the property that may be assumed by the buyer-lessor
C) the seller-lessee is required to compensate the buyer-lessor for a decline in the fair market value of the property at the end of the lease term
D) all of the above
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21
Chapter 20: Ownership Structures for Financing and Holding Real Estate
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36 Verified Questions
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Sample Questions
Q1) 20-18.The individual who owns real estate in his or her name holds it as:
A) sole ownership
B) partnership in a community property state
C) corporation in New York
D) none of the above
Q2) 20-10.The best form of ownership for large-scale real estate investments is:
A) publicly traded partnership
B) REITs
C) C-corporation
D) a and b
Q3) 20-31.The Real Estate Investment Trust Act authorizes:
A) REITs are subject to double taxation in exchange for limited liability
B) REITs are exempt from double taxation as long as certain conditions are met
C) REITs are considered a form of limited partnership
D) REITs are exempt from federal securities laws
Q4) 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
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Chapter 21: Real Estate in a Portfolio Context
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Sample Questions
Q1) A statistical measure of risk is termed:
A) correlation coefficient
B) probability
C) variance d none of the above
Q2) The cost of obtaining all of the information sufficient to make an informed and rational investment in real estate is termed:
A) marketability risk
B) residual risk
C) formation risk
D) liquidity risk
Q3) 21-10.It appears that the greatest risk reduction occurs through real estate diversification on the basis of:
A) property type
B) geographic location
C) value
D) none of the 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) Making of a promise with no intention of fulfilling it is referred to as:
A) nondisclosure fraud
B) promissory fraud
C) tort
D) fiduciary
Q2) 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
Q3) 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
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