Urban Land Economics Review
Questions
Course Introduction
Urban Land Economics explores the economic principles and forces that shape the development, valuation, and use of land in urban environments. This course examines topics such as land use theory, urban growth patterns, real estate markets, property valuation, public policy impacts, and the roles of government and private entities in urban land development. Students will analyze how economic factors influence land use decisions, understand the spatial organization of cities, and evaluate the implications of zoning, taxation, and urban planning on land markets and urban form.
Recommended Textbook
Real Estate Finance Theory and Practice 6th Edition by Terrence M. Clauretie
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22 Chapters
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Page 2
Chapter 1: Finance and Real Estate
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Sample Questions
Q1) Capital markets:
A) deal in long-term securities
B) deal in short-term Treasury bills and long-term Treasury bonds to finance their deficits
C) rarely are involved in real estate transactions
D) consider mortgages only for short-term,interim financing
Answer: A
Q2) Risk:
A) is the same as risk-return tradeoff
B) is the possibility that the actual result will differ from the expected outcome
C) states that investors require additional expected returns for taking on additional risk
D) doesn't need to be considered when analyzing a potential investment
Answer: B
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3
Chapter 2: Money Credit and the Determination of Interest
Rates
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Sample Questions
Q1) The price-anticipation effect on interest rates:
A) reflects the decrease in the supply of credit as a result of future expected inflation
B) reflects the increase in the supply of credit as a result of future expected inflation
C) reflects the decrease in the supply of credit as a result of future expected inflation rate
D) reflects the increase in the supply of credit on inflation and future expected inflation
Answer: A
Q2) The risk associated with the possibility that a bond issuer could legally repurchase outstanding bonds at their face value is called:
A) callability risk
B) default risk
C) purchasing power risk
D) maturity risk
Answer: A
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Chapter 3: Finance Theory and Real Estate
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Sample Questions
Q1) Monitoring costs do NOT include:
A) auditing the books
B) inspecting the property
C) paying property taxes
D) checking on the operations of the manager
Answer: C
Q2) An agent is:
A) someone retained by a principal to conduct activities for the principal's benefit
B) someone retained by another to represent them in all legal matters
C) someone retained by a principal authorized to sign any legal documents
D) someone retained by another to ensure legal protocol is followed
Answer: A
Q3) Conditions that do NOT lead to market efficiency include:
A) uniform and widespread information
B) no transaction costs
C) market restrictions
D) a large number of buyers and sellers
Answer: C
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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) A 30-year fixed-rate mortgage has a contract rate of 7.00% with one point.A 15- year fixed-rate mortgage has a contract rate of 6.25%.If both loans have a 15-year holding period,what amount of points on the 15-year loan will equalize the effective costs of these loans over their holding periods? Assume a loan amount of $80,000.
A) the effective costs cannot be equal because of the different loan amortizations
B) 5.20 points
C) 5.31 points
D) 5.56 points
E) none of the above
Q2) 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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6
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) 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) The following is not an alternative mortgage instrument:
A) SAM
B) RAM
C) HFR
D) FLIP
Q2) The tilt problem causes the real payment on a fixed rate mortgage to be:
A) high at the beginning and low at the end
B) low at the beginning and high at the end
C) high at the beginning and end and low in the middle d low at the beginning and end and high in the middle
Q3) Suppose you have a 30-year ARM with a balance at the EOY2 of $139,632 and a monthly payment for year 3 of $1239.88.If the margin is 2.50,what is the value of the index to produce this payment?
A) 10.00%
B) 7.50%
C) 12.50%
D) 7.64%
E) cannot be determined
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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) Under the current tax law,what would the annual cost of housing be for a person with a house valued at $150,000,a mortgage rate of 11 percent,property taxes of 3 percent,miscellaneous expenses and depreciation of 1 percent,and housing inflation of 7 percent.The person is in the 30 percent tax bracket.
A) $4,700
B) $4,200
C) $6,100
D) $5,700
Q2) Under Regulation Z,the borrower must be informed about the total finance charges associated with a residential mortgage.Which of the following charges are not mandated to be included in this report?
A) appraisal fees
B) discount points
C) title examination fees
D) amount of each payment
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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 fails to adhere to a set of guidelines governing the do's and don'ts of a lending procedure.This is known as the:
A) effects method
B) intent method
C) practices method
D) screening method
Q2) 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
Q3) 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
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Chapter 10: The Secondary Mortgage Market
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Sample Questions
Q1) 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
Q2) 10-30.Mortgage related securities that offer cash flows similar to corporate bonds are:
A) mortgage pay-through bonds
B) mortgage backed bonds
C) mortgage passthroughs
D) collateralized mortgage obligations
E) none of the above
Q3) 10-13.Rating agencies review the credit risk of the collateral of CMOs for all of the following except:
A) type of property
B) location of property
C) interest rates d loan-to-value ratio of property
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Chapter 11: Valuation of Mortgage Securities
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Sample Questions
Q1) 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
Q2) 11-19.The CPR of passthroughs refers to:
A) coupon premium risk
B) coupon percentage rate
C) constant prepayment rate
D) cardio-pulmonary resuscitation
Q3) 11-15.Which of the following is true?
A) even a slight increase in the default rate of a sinking fund has a dramatic impact on its balance
B) a large increase in the initial amount of over-collateralization has a minimal impact on the terminal fund balance
C) an increase in the yield on a sinking fund has a negative effect on the fund balance
D) the fund balance will rise with decreases in the PSA prepayment rate
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Chapter 12: Controlling Default Risk Through Borrower
Qualification Loan Underwriting and Contractual Relationships
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Sample Questions
Q1) 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
Q2) 12-39.If a fire completely destroys a residence,the lender has the right to require that the proceeds from insurance be applied to paying off the note rather than rebuilding the property.The event is termed:
A) substitionary conversion
B) declaration conversion
C) involuntary conversion
D) voluntary conversion
Q3) 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
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Chapter 13: Loan Origination, Processing, and Closing
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Sample Questions
Q1) 13-16.A deed conveys:
A) Title to the property from the buyer to the seller
B) identification of the sellers as the grantees who are the same as the owners-of-record
C) title to the property from the seller to the buyer
D) none of the above
Q2) 13-15.A promissory note represents:
A) the borrower's promise to obtain the loan
B) the borrower's promise to repay the loan
C) a deed
D) a commitment to be a part of the closing file
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
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Sample Questions
Q1) FHA mortgage insurance:
A) protects the borrower against all losses due to default
B) protects the lender against all losses due to fraud
C) protects the lender and borrower from all losses due to 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) 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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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) 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
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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17
Chapter 16: Federal Taxation and Real Estate Finance
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Sample Questions
Q1) Income from a limited partnership is classified as:
A) active
B) passive
C) portfolio
D) deferred
Q2) 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
Q3) The Tax Act of 1993 raised the marginal tax rates on ordinary income to:
A) 28%
B) 39.6%
C) 51.8%
D) 42.5%
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Chapter 17: Sources of Funds for Commercial Real Estate
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Sample Questions
Q1) Insurance companies invest primarily in:
A) CMOs
B) commercial mortgages
C) residential mortgages
D) none of the above
Q2) Thrifts specialize in:
A) residential loans
B) multi-family properties
C) commercial properties
D) none of the above
Q3) The largest supplier of commercial real estate debt is:
A) state and local retirement funds
B) commercial banks
C) thrifts
D) pension funds
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) Land loans will seldom exceed:
A) 70-80% of the appraised value of the land
B) 80-90% of the appraised value of the land
C) 60-70% of the appraised value of the land
D) 50-60% of the appraised value of the land
Q2) 18-36.Loan-to-Value ratios for commercial projects are usually:
A) 40-50%
B) 50-60%
C) 60-70%
D) 70-80% e 80-90%
Q3) 18-37.Raw land is acquired by two types of investors:
A) developer/warehouser
B) developer/speculator
C) speculator/warehouser
D) speculator/lender
Q4) The speculator is interested in:
A) appreciation of the land
B) depreciation of the land
C) immediate plans for the land
D) none of the above
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Chapter 19: Permanent Financing of Commercial Real
Estate Properties
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Sample Questions
Q1) All of the following are criteria for capital leases except:
A) the lease terms provide for the transfer of the ownership title of the property to the lessee at the end of the lease term
B) the lease contains an option to purchase the asset at a bargain price
C) the present value of the minimum lease payments is less than 90 percent of the current fair market value of the asset (less any investment tax credit retained by the lessor)
D) the lease term is equal to or greater than 75 percent of the estimated economic life of the asset
Q2) 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
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Page 21
Chapter 20: Ownership Structures for Financing and Holding Real Estate
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Sample Questions
Q1) 20-22.Partnerships can be categorized as:
A) general
B) limited
C) material
D) a and b
E) all of above
Q2) 20-16.An IRS code criteria for a REIT to qualify as a tax-free entity is:
A) it can not issue transferable shares
B) it may be a financial institution or insurance company
C) it must derive at least 75% of its gross income from real estate related investments
D) it may not hold all of its assets in the form of mortgages
Q3) The main disadvantage of the partnership structure for holding real estate is:
A) tax regulations
B) personal liability
C) access to capital markets
D) none of the above
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22
Chapter 21: Real Estate in a Portfolio Context
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Sample Questions
Q1) 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
Q2) 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
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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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) 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) Making of a promise with no intention of fulfilling it is referred to as:
A) nondisclosure fraud
B) promissory fraud
C) tort
D) fiduciary
24
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