Advanced Real Estate Finance
Chapter Exam Questions
Course Introduction
Advanced Real Estate Finance explores the complex financial instruments and analytical techniques used in modern real estate markets. This course covers topics such as debt and equity financing, real estate capital markets, securitization, risk analysis, portfolio management, and the structuring of complex real estate transactions. Students will learn to use financial models and valuation methods to assess investments, analyze trends in property markets, and understand the impact of macroeconomic factors on real estate finance. The course emphasizes practical application through case studies, industry examples, and hands-on projects to prepare students for advanced roles in real estate investment, development, and financial analysis.
Recommended Textbook
Real Estate Finance and Investments 13th Edition by William Brueggeman
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Chapter 1: Real Estate Investment: Basic Legal Concepts
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Q1) An historical summary of the publicly recorded documents that affect the ownership of a property is know as a(n):
A) Estate
B) Deed
C) Abstract of title
D) Lien
Answer: C
Q2) Which of the following is NOT a good method of title assurance?
A) Seller provides a warranty in the deed.
B) An attorney searches recorded documents.
C) Title insurance is purchased.
D) Seller provides a quitclaim deed.
Answer: D
Q3) Which of the following is FALSE concerning Mechanic's Liens?
A) Gives the right to attach a lien on real estate
B) Can get money through forcing judicial sale
C) Lasts even after the bill for labor and materials has been paid
D) Might not be disclosed by the public records
Answer: C
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Page 3
Chapter 2: Real Estate Financing: Notes and Mortgages
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Q1) Which of the following terms refers to the prohibition of the commencement or continuation of collection proceedings during a bankruptcy proceeding?
A) Preferential transfer
B) Deficiency judgment
C) Automatic stay
D) Extension
Answer: B
Q2) What is usually executed at the same time as a mortgage and creates the obligation to repay the loan in accordance with its terms?
A) Recording acts
B) Ownership interests
C) Method of payment
D) Promissory note
Answer: A
Q3) A fee simple estates is a type of freehold estate.
A)True
B)False
Answer: True
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4
Chapter 3: Mortgage Loan Foundations: The Time Value of Money
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Q1) The future value of a single deposit of $1,000 will be greater when this amount is compounded:
A) annually
B) semi-annually
C) quarterly
D) monthly
Answer: D
Q2) At 6%,the present value of a $1 payment in 12 months is .941905.At 7%,the present value of a $1 payment in 12 months is .950342.
A)True
B)False
Answer: False
Q3) The internal rate of return:
A) is also known as the investment of investor's yield.
B) represents a return on investment expressed as a compound rate of interest.
C) is calculated by setting the price of an investment equal to the stream of cash flows it generates and solve for the interest rate.
D) can be defined by all of the above.
Answer: D
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Chapter 4: Fixed Interest Rate Mortgage Loans
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Sample Questions
Q1) Which of the following closing costs do not increase the lender's effective loan yield?
A) Discount points
B) Prepayment penalties
C) Title insurance charges
D) Origination fees
Q2) Demand for a mortgage loan is considered:
A) Stable Demand
B) Derived Demand
C) Interest Rate Demand
D) Nominal Demand
Q3) The APR for a loan assumes it is prepaid after ten years.
A)True
B)False
Q4) With every CPM,the effective costs of borrowing are higher than the stated rate of the loan.
A)True
B)False
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6
Chapter 5: Adjustable and Floating Rate Mortgage Loans
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Q1) Which loan should have the lowest initial interest rate?
A) Loan 1
B) Loan 2
C) Loan 3
D) Loan 4
Q2) Which loan is a FRM?
A) Loan 1
B) Loan 2
C) Loan 3
D) Loan 4
Q3) Which of the following are disadvantages of PLAMs?
A) Lenders face high levels of interest rate risk under PLAMs.
B) Fewer homebuyers are likely to qualify for financing using PLAMs in comparison to CPMs.
C) The price level used to index PLAMs is measured on an ex post basis and historic prices may not be an accurate reflection of future price.
D) All of the above.
Q4) Negative amortization reduces the principal balance of a loan.
A)True
B)False
Page 7
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Chapter 6: Mortgages: Additional Concepts, Analysis, and Applications
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Q1) Which of the following is TRUE concerning Wraparound Loans:
A) The borrower makes payments on existing loan
B) The lender makes payments on existing loan
C) The lender only makes payments on the second mortgage
D) The borrower only makes payments on the second mortgage
Q2) Use the information in problem 1,except assume that the loan will be repaid in 5 years.What is the incremental cost of borrowing the extra money?
A) 13.95%
B) 13.67%
C) 14.42%
D) 12.39%
Q3) Buydown loans have initial payments that are lower than they would be without the buydown provision.
A)True
B)False
Q4) A loan with biweekly payments will have more interest than a monthly loan with the same interest rate and loan term.
A)True
B)False
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Chapter 7: Single-Family Housing: Pricing, Investment, and Tax Considerations
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Q1) Use of construction costs is very important in the sales comparison approach to valuation.
A)True
B)False
Q2) Mortgage interest and property taxes are deductible for federal income tax purposes for homeowners.
A)True
B)False
Q3) Residential appraisers use only the sales comparison approach to determine value of the homes they appraise.
A)True
B)False
Q4) Estimating the land value for an improved property cannot be accomplished using the sales comparison method of valuation.
A)True
B)False
Q5) A location quotient is the ratio of total employment to base employment.
A)True
B)False
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Chapter 8: Underwriting and Financing Residential Properties
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Sample Questions
Q1) FTL requires that the lender disclose an estimated cost of financing within three days of loan application.
A)True
B)False
Q2) Financing costs are usually paid by the lender to either the borrower/buyer or the seller.
A)True
B)False
Q3) Pro-ration involves a professional who rates the quality of the property.
A)True
B)False
Q4) Which typically is NOT one of the financing costs associated with the financing of real estate?
A) Closing fees
B) Loan application and credit report fees
C) Property inspection and appraisal fees
D) Loan discount and prepaid interest fees
Q5) FTL and RESPA essentially say the same things. A)True
B)False
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Chapter
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Sample Questions
Q1) A gross lease is riskier for the lessor than a net lease.
A)True
B)False
Q2) Which is not true about Cap rates?
A) Excess supply tends to drive cap rates up
B) Rising interest rates generally tends to lower cap rates
C) Excess demand and falling interest rates results in lower cap rates
D) Excess demand leads to lower cap rates
Q3) Income after deducting vacancy that is available to pay expenses is referred to as
A) Potential gross income
B) Effective gross income
C) Net operating income
D) Before tax cash flow
Q4) Net operating income is the income after deduction of mortgage payments.
A)True
B)False
Q5) A gross lease is where tenants pay all expenses.
A)True
B)False
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Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital
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Sample Questions
Q1) When conducting an appraisal,only one of three approaches should be selected to determine the property value.
A)True
B)False
Q2) Which of the following steps normally would be used in the cost approach to value?
A) Estimate net operating income of the property
B) Multiply accrued depreciation by the assessed cost
C) Add actual construction costs to the land value
D) Subtract accrued depreciation from the replacement cost
Q3) Total possible income less any vacancy is __________.
A) EGI
B) PGI
C) NOI
D) GIM
Q4) In the cost approach to value,land value can be estimated by comparing sales of vacant land that are similar to the subject land.
A)True
B)False
Page 12
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Chapter 11: Investment Analysis and Taxation of Income Properties
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Sample Questions
Q1) A property that produces a first year NOI of $80,000 is purchased for $750,000.The NOI is expected to increase by 15% in the sixth year when some of the leases turnover.The resale price in year 10 is expected to be $830,000.What is the net present value of the property based on the 10-year holding period and a discount rate of 9.5%?
A) $87,433
B) $87,221
C) $95,294
D) $116,490
Q2) Expense stops protect the lessee from unexpected changes in market rents.
A)True
B)False
Q3) If an individual actively participates in the management of a rental property,he may deduct the full amount of the passive activity losses from active income,regardless of his adjusted gross income.
A)True
B)False
Q4) A gross lease is riskier for the lessor than a net lease.
A)True
B)False
Page 13
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Chapter 12: Financial Leverage and Financing Alternatives
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Q1) Properties with a higher ratio of debt are considered to also have a higher risk assuming everything else is equal.
A)True
B)False
Q2) In an inflationary environment where property values are also rising,a participation loan may provide a lender with some protection against unanticipated inflation.
A)True
B)False
Q3) A loan in which the lender receives part of the proceeds from the sale of the property is known as a convertible loan.
A)True
B)False
Q4) If a property has positive leverage,the owner should borrow as much as possible. A)True
B)False
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Chapter 13: Risk Analysis
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Sample Questions
Q1) Which of the following risks refers to the risk to real estate investors stemming from changes in general economic conditions?
A) Financial risk
B) Liquidity risk
C) Environmental risk
D) Business risk
Q2) In general,real estate is usually considered more risky than bonds but less risky than stocks.
A)True
B)False
Q3) When an investor does an investigation when considering acquisition of a property,this is referred to as:
A) Investigation
B) Risk analysis
C) Due diligence
D) Acquisition analysis
Q4) Real estate has a lot of inflation risk.
A)True
B)False
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Chapter 14: Disposition and Renovation of Income Properties
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Sample Questions
Q1) A property should be sold when which of the following occurs?
A) The marginal rate of return is rising but less than the reinvestment rate
B) The marginal rate of return is constant
C) The marginal rate of return is zero
D) The marginal rate of return is falling and becomes equal to the reinvestment rate
Q2) A property worth $16 million can be refinanced with an 80% loan at 9.5% over 20 years.The balance on the current loan is $12,148,566.Loan payments are $113,302 per month.The loan balance in 10 years will be $8,396,769.If the property is expected to be sold in 10 years,what is the incremental cost of refinancing?
A) 9.71%
B) 10.36%
C) 12.42%
D) 14.58%
Q3) After the 1986 tax law change,investors that already owned properties had to change the way they were depreciating the properties.
A)True
B)False
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Page 16
Chapter 15: Financing Corporate Real Estate
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Sample Questions
Q1) Similar to decisions about owning or leasing equipment,the decision to own or lease a property is basically just a choice between two financing alternatives.
A)True
B)False
Q2) All other factors being equal,a company would prefer to own rather than lease under which of the following conditions?
A) The expected life of an asset far exceeds the company's projected period of use
B) The real estate investment represents a large proportion of the company's total capital
C) The corporate needs for the property are not highly sensitive to the level of maintenance
D) The corporation needs a specialized research and development building
Q3) Which of the following is FALSE,concerning operating leases?
A) It is recorded as present value of lease on the balance sheet.
B) It does not have any real effect the balance sheet.
C) It must not extend for at least 75 percent of the asset's life.
D) It is usually the preferred form of accounting for leases.
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Chapter 16: Financing Project Development
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Q1) Commitments for construction financing are usually contingent on commitments for permanent financing.
A)True
B)False
Q2) Interest on a construction loan is usually paid:
A) upfront at the beginning of the loan.
B) periodically over the life of the loan.
C) inquarterly installments over the life of the loan.
D) atthe end of the loan.
Q3) What term applies to the use of third-party financing that is used between funding advanced by the permanent lender and funds needed to repay the construction loan?
A) Interim Loan
B) Mini-perm financing
C) Gap financing
D) Partial financing
Q4) Loans made under the assumption that markets will turn around are referred to as spec loans.
A)True
B)False
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Chapter 17: Financing Land Development Projects
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Q1) The land development industry is best characterized by which of the following statements?
A) The land development industry is dominated by relatively few national competitors
B) The land development industry is highly fragmented,localized,and extremely competitive
C) Land development and project development are synonymous
D) The production technologies and market risks involved in land development are essentially the same as those in project development
Q2) A transaction in which two firms trade individual financing advantages to produce more favorable borrowing terms for each is know as a(n):
A) interest rate swap.
B) sequential short hedge.
C) cross hedge.
D) allof the above.
Q3) The release schedule refers to a schedule of expiring leases for existing tenants.
A)True
B)False
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19
Chapter 18: Structuring Real Estate Investments:
Organizational Forms and Joint
Ventures
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Q1) How should interest prepayments (including points)for income producing real estate be handled for tax purposes?
A) They should be expensed over the first year
B) They should be amortized over a period of no less than 60 months
C) They should be amortized over the life of the loan
D) They should be capitalized and deducted once the loan is paid off
Q2) Interest and real estate tax incurred during construction of real property improvements must be
A) Deducted from the resale price of the property
B) Included in depreciable basis of the property
C) Expensed over the construction period
D) Not be included as value of improvements
Q3) What guidelines does the IRS follow that impose certain ownership and minimum capital requirements to avoid "dummy" corporations to act as sole corporate general partners.
A) Safe harbor rules
B) Caveat rules
C) Blind pool rules
D) Regulation corporation rules
Page 20
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Chapter 19: The Secondary Mortgage Market: Pass-Through Securities
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Q1) Which of the following is FALSE concerning Mortgage-Backed Bonds (MBB)
A) Issuer retains ownership of mortgages.
B) Maturity is indefinite at issuance.
C) Issued with fixed coupon rates.
D) Usually underwritten by investment banking companies.
Q2) Which of the following developments assured mortgage investors that they would receive interest and principal payments at little or no risk?
A) The availability of hazard and title insurance
B) The availability of mortgage default insurance and loan guarantees
C) The development of standardized loan underwriting,processing,and servicing
D) All of the above
Q3) The Federal Home Loan Mortgage Corporation's (FHLMC)primary purpose is to provide liquidity for conventional mortgage originators just as FNMA and GNMA did for originators of FHA - VA mortgages.
A)True
B)False
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21
Chapter 20: The Secondary Mortgage Market: Cmos and
Derivative Securities
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Q1) The total interest collected from the pool is _________ if prepayment accelerates;therefore the dollar spread between interest inflow and outflow becomes ________.
A) Lower,smaller
B) Lower,wider
C) Higher,smaller
D) Higher,wider
Q2) CDOs often include "B" notes,mezzanine debt and preferred equity as investments
A)True
B)False
Q3) In comparison to mortgage pass-though securities,CMOs attract a broader class of investors because,by prioritizing cash flows,they can offer more specific maturities.
A)True
B)False
Q4) In CMO terminology,planned amortization classes (PACs)are also known as companion tranches.
A)True
B)False
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Chapter 21: Real Estate Investment Trusts Reits
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Q1) A hybrid REIT is comprised of what primary classifications of REITs?
A) UPREITs and Mortgage
B) Mortgage,Equity,and Retail
C) Mortgage and Equity
D) Healthcare,Retail,and Office
Q2) Which of the following is not a type of REIT?
A) Mortgage trust
B) Equity trust
C) Hybrid trust
D) Partnership trust
Q3) REITs can sometimes capitalize rather than lease certain expenditures to increase FFO.
A)True
B)False
Q4) Usually ground leases are for relatively short periods of time.
A)True
B)False
Q5) A REIT must have at least 200 shareholders.
A)True
B)False
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Chapter 22: Real Estate Investment Performance and Portfolio Considerations
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Q1) As long as the coefficient of correlation between two stocks is less than +1,some reduction in risk can be obtained by combining the securities.
A)True
B)False
Q2) The coefficient of variation of the returns,also known as the risk-to-reward ratio,is defined as:
A) thestandard deviation of returns divided by the mean return.
B) thevariance of return multiplied by the mean return.
C) thevariance of returns divided by the standard deviation of returns.
D) none of the above.
Q3) Assume a portfolio is comprised of two securities,A and B,whose standard deviations are 0.0412 and 0.0721,respectively.If their covariance is 0.002,what is their coefficient of correlation?
A) 0.005
B) 0.115
C) 0.673
D) 1.485
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