Real Estate Investment
Test Questions
Course Introduction
Real Estate Investment is a comprehensive course that explores the principles and practices of investing in real property. Students will learn about key concepts such as property valuation, market analysis, financing methods, risk assessment, and investment strategies for both residential and commercial properties. The course covers the structure of real estate markets, portfolio diversification, and the impact of economic and legal factors on real estate investment decisions. Through case studies and practical exercises, students will develop analytical skills needed to evaluate investment opportunities and make informed decisions in the dynamic real estate industry.
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 secondary mortgage market:
A) is called secondary because it is less important than the primary mortgage market
B) is where an investor goes after the primary mortgage market has turned down his request for credit
C) increases liquidity risk due to its inefficiency
D) purchases and sells mortgages that have been previously originated by other lenders
Answer: D
Q2) 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 liquidity effect:
A) refers to the initial short-term effect of a decrease in the money supply when interest rates rise
B) refers to the initial short-run effect of an increase in the money supply on interest rates
C) decreases the amount of excess cash individuals hold when interest rates drop
D) has no effect on the demand for bonds
Answer: B
Q2) The following security is generally considered to have no default risk:
A) EBM corporation
B) Orange County,California
C) U.S. Treasury securities
D) State of New York general revenue bonds
Answer: C
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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Sample Questions
Q1) Pass-through Mortgage Backed Securities (MBSs)provide the investor with:
A) less prepayment risk as the originator of a specific mortgage
B) a prorated share of all monthly principal and interest payments
C) no risk from prepayments of loans
D) a weighted average of the monthly principal but not interest payments
Answer: B
Q2) If the current market price of a share of stock is $47 and the intrinsic value is $3,what is the strike price?
A) $3
B) $50
C) $44
D) $47
Answer: C
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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Page 5
Chapter 4: The Early History of Residential Finance and
Creation of the Fixed Rate Mortgage
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Sample Questions
Q1) A discount point is:
A) one percent of the original loan balance
B) determined only at the loan closing
C) the same as the origination fee
D) none of the above
Q2) The annual percentage rate (APR)on a mortgage is:
A) the contract rate as established by the lender
B) the effective yield taking into account discount points
C) the rate for the first year only
D) the monthly rate multiplied by twelve
Q3) 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
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Chapter 5: Modern Residential Finance
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Sample Questions
Q1) 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
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) A reason not to refinance a loan is:
A) a decline in the market rate of interest
B) a higher level of income for the borrower
C) a desire to take some equity out of the property
D) to improve the amount of cash flows from an investment property
Q2) With a Reverse Annuity Mortgage:
A) the borrower receives monthly payments and makes a large repayment at the end of the mortgage term
B) the loan amount greatly exceeds the value of the house
C) the payments are designed for young couples purchasing their first house
D) the rate is adjusted every six months
Q3) The following is NOT a characteristic of a graduated payment mortgage:
A) it alleviates the tilt affect
B) payments are higher at the beginning and lower at the end
C) the interest rate does not change
D) negative amortization may occur at some stages of the loan term
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8
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) 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) 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
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9
Chapter 8: Federal Housing Policies: Part 1
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Sample Questions
Q1) Before the integration of the mortgage market into the larger capital market,rates on residential mortgages relative to bonds were:
A) generally lower
B) always lower
C) relatively higher
D) about the same
Q2) A loan in which the seller or another third party agrees to pay an amount to the lender in order to reduce the borrower's payments,or to reduce the interest rate for a portion of the loan's term,is called a(n):
A) adjustable rate mortgage
B) graduated payment mortgage
C) buy down mortgage
D) shared appreciation mortgage
Q3) 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
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Page 10
Chapter 9: Federal Housing Policies: Part 2
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Sample Questions
Q1) One method of defining or identifying discriminating lending behavior is that discrimination is said to exist if a lender purposely intends to treat a minority group member less favorably.This is known as the:
A) effects method
B) intent method
C) practices method
D) screening method
Q2) In a perfectly competitive market,a discriminatory firm would:
A) have higher costs
B) be less efficient
C) have a lower stock value
D) all of the above
E) none of the above
Q3) 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
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Chapter 10: The Secondary Mortgage Market
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Sample Questions
Q1) 10-17.Players that facilitate transactions in the secondary market include:
A) government National Mortgage Association
B) federal National Mortgage Association
C) private firms
D) all of the above
E) a and b
Q2) 10-23.A secondary mortgage transaction that occurs when a lender sells mortgages to an agency that,in turn,issues an MRS,such as a pass-through,back to the lender is referred to as
A) SWAP
B) tailor
C) collateralized mortgage obligation
D) credit enhancement
Q3) 10-14.With a mortgage pass-through security the investor is said to have a(n):
A) undivided interest in the mortgage pool
B) divided interest in the mortgage pool
C) partnership interest in the mortgage pool
D) principal interest in the mortgage pool
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Page 12
Chapter 11: Valuation of Mortgage Securities
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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) 11-20.In any one period (month)the cash flows from a pool of several hundred mortgages will consist of:
A) scheduled amortization of principle
B) interest on the remaining principle
C) prepayments of a portion of the pool
D) a and b only
E) a,b,and c
Q3) 11-22.An increase in the market rate of interest will:
A) slow the prepayment rate on discounted passthroughs
B) slow the prepayment rate on premium passthroughs
C) both a and b
D) will not affect either a or b because of the price compression theory
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Chapter 12: Controlling Default Risk Through Borrower
Qualification Loan Underwriting and Contractual Relationships
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Sample Questions
Q1) For 95% loan-to-value loans FNMA requires that,as a percent of gross income,the payment not exceed:
A) 10%
B) 15%
C) 25%
D) 18%
Q2) 12-18.The process of determining and controlling the risk of loss on a residential loan includes:
A) contractual agreements
B) borrower qualification and loan underwriting
C) real property loan stipulations
D) both a and b
Q3) 12-20.A theory that states that no borrower with substantial positive equity would default,even if unable to make the monthly payments,is:
A) equity theory
B) bird-in-hand theory
C) resolution equity theory
D) equity binding theory
Page 14
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Chapter 13: Loan Origination, Processing, and Closing
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Sample Questions
Q1) 13-39.A document issued upon the closing of the loan and states the loan terms such as amount and payments is referred to as:
A) note
B) endorsement
C) mortgage
D) record
Q2) 13-42.Under VA government mortgage guarantees,losses are:
A) fully covered
B) partially covered
C) absorbed by the lender
D) guaranteed up to 60 percent of the loss
Q3) 13-38.In the event that the contract price exceeds the appraised value of the property: I.the VA will cover the difference.
II)the FFIA will cover the difference.
A) I only
B) II only
C) both I and II
D) neither I nor II
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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) 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) 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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Sample Questions
Q1) 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
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) A key non-real estate source of property cash flow is:
A) tax shelter
B) managerial talent
C) use of equity financing
D) debt financing
E) all the above
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Chapter 16: Federal Taxation and Real Estate Finance
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Sample Questions
Q1) 16-13.Passive loss limitation rules allow active participants in a real estate investment to offset up to _________________ of income from other classes:
A) $15,000
B) $25,000
C) $30,000
D) $50,000
E) none of the above
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) Generally,the capital loss limitation rule allows taxpayers to offset capital losses against:
A) ordinary income
B) capital gains
C) passive gains
D) portfolio income
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Page 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) Insurance companies invest primarily in:
A) CMOs
B) commercial mortgages
C) residential mortgages
D) none of the above
Q4) The primary institutional investors in equity real estate are:
A) pension funds
B) federal credit agencies
C) unions
D) none of the above
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Chapter 18: Acquisition, Development, and Construction Financing
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Sample Questions
Q1) 18-13.Subdivision control ordinances are designed to protect the:
A) seller
B) lender
C) consumer
D) developer
Q2) 18-39.The following has an affect on option premiums:
A) length of the time of the option
B) volatility of market prices
C) the strike price of the option
D) all of the above
E) a and b
Q3) 18-25.ADC financing is done primarily:
A) by institutions that specialize in such lending
B) all at once by one "Master Lender"
C) by small lending institutions
D) without the use of a lawyer
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Page 20
Chapter 19: Permanent Financing of Commercial Real
Estate Properties
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Sample Questions
Q1) A clause that allows the lender to step in and collect lease payments directly from the tenants in the event the borrower becomes delinquent on the loan is an:
A) assignment of leases
B) assignment of rents
C) assignment of payments
D) assignment of loans
Q2) Between residential and commercial loans the following is NOT true:
A) long-term commercial loans involve a more intricate underwriting process
B) residential loans have prepayment penalties,commercial loans do not
C) a clause in a residential loan allows the lender to step in and collect lease payments directly from the tenants in the event the borrower defaults on the loan
D) b and c
Q3) 19-19.Multi-site securitization refers to:
A) one facility is sold to a tenant
B) a pool of facilities net leased to a tenant
C) a pool of facilities net sold to a tenant
D) the facilities sold to an entity within the organization
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Page 21
Chapter 20: Ownership Structures for Financing and Holding Real Estate
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Sample Questions
Q1) 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
Q2) 20-25.Sole ownership of real estate relies heavily on the use of debt because:
A) limited equity of most sole owners
B) little access to large capital markets
C) lack of available properties
D) a and b
E) a and c
Q3) In 1960 Congress created the REIT structure to:
A) eliminate double taxation problems
B) eliminate personal liability issues
C) increase holding periods
D) offset passive loss limitation problems
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Chapter 21: Real Estate in a Portfolio Context
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Sample Questions
Q1) 21-13.The following is NOT true:
A) diversification reduces the risk associated with holding an asset in isolation
B) diversification reduces risk even when the returns on the combined assets are not correlated
C) transaction costs often outweigh the benefits of diversification
D) none of the above
Q2) 21-11.Residual risk refers to:
A) liquidity risk of real estate
B) difficulty of other than large investors to diversify real estate holdings
C) cost of obtaining information to make an informed and rational investment decision
D) the risk of diversifying a portfolio
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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Chapter 22: Liability, Agency Problems, Fraud, and Ethics in Real Estate Finance
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Sample Questions
Q1) The fiduciary relationship which results from the manifestation of consent by one person to another such that the other shall act on behalf and subject to his control,and consent by the other so to act,is referred to as:
A) statute of frauds
B) agency
C) lender control
D) parole evidence rule
Q2) Making of a promise with no intention of fulfilling it is referred to as:
A) nondisclosure fraud
B) promissory fraud
C) tort
D) fiduciary
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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