Real Estate Finance
Question Bank
Course Introduction
Real Estate Finance explores the financial principles, concepts, and analytical techniques essential for understanding investment and financing decisions in the real estate industry. The course covers topics such as property valuation, mortgage markets, risk analysis, financing mechanisms, investment analysis, and the impact of economic and regulatory factors on real estate markets. Through case studies and real-world applications, students gain insight into lending practices, equity financing, capital structure, investment returns, and portfolio management in the context of both residential and commercial real estate. This course provides a solid foundation for careers in real estate investment, development, lending, and financial analysis.
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) The following is an accurate statement:
A) the fields of finance and economics are unrelated for the most part
B) finance is a segment of the more general field of economics
C) finance focuses on profits,whereas economics focuses on cash flows
D) b and c
Answer: B
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
Q3) The definition of real property includes:
A) only that property that can be seen and touched
B) all of the rights and privileges of the use of real estate
C) only land and buildings,the rights and privileges cannot be included
D) a and c
Answer: B
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3
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) In the equation of exchange:
A) M = marginal revenue,V = velocity of trade. P = price level,T = trade value
B) M = money,V = volume of trade,P = price level,T = Time value of money
C) M = market yield,V = variability of circumstances,P = population growth, T time value of money
D) M = money supply,T = velocity of circulation,P = general price level,T = volume of trade
Answer: D
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
Page 4
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Chapter 3: Finance Theory and Real Estate
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24 Verified Questions
24 Flashcards
Source URL: https://quizplus.com/quiz/69723
Sample Questions
Q1) Positive financial leverage occurs when:
A) the asset is finance with all equity
B) the cost of borrowing exceeds the return on the investment
C) the cost of the debt is less than the return on the investment
D) there is a decline in the return on equity
Answer: C
Q2) Servicing rights occur when an originator of a portfolio of mortgages sells that portfolio to an investor.
A) a reasonable fee for the originator would be 7%
B) the originator continues to collect the monthly payments and delinquent payments
C) the investor is responsible for sending out delinquent notices
D) the investor collects all delinquent payments and penalty payments
Answer: B
Q3) Cash flows associated with servicing rights:
A) have little risk since the servicing fees are related to all payments
B) are not affected by market rates
C) have value and can be sold
D) are composed of the fees less the discount rate
Answer: C
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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) Lenders are offering different financing options on 30-year FRMs.One lender offers a contract rate of 6% with one discount point while another lender offers a 6% contract rate with two discount points.Since both loans are discounted,which is the better option for the borrower based on the APR? Other factors are held constant and the borrower wants to minimize his/her borrowing cost.
A) 6% with one point
B) 6% with two points
C) can't determine without the loan amount
D) discounting doesn't matter,the APRs will be the same since the contract rates are the same
Q2) You have just taken a $110,000 FRM at 8% for 30 years,monthly payments.You know that your APR is 8.214% but you cannot remember how many discount points you paid.If you had $550 in financing fees other than discount points,the points you paid were:
A) $2,200 or 2 points
B) $2,245 or 2.04 points
C) $1,650 or 1.50 points
D) $1,695 or 1.54 points
E) none of the above
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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) An ARM has the following characteristics at the outset: index value = 5%,margin = 2.75,teaser rate = 5.50%.The contract interest rate for the first year is:
A) 5%
B) 5.50%
C) 7.75%
D) cannot be determined
Q2) Your ARM payment in year one is $671.03.The ARM is a 30 year term with a beginning rate of 5%.In year two your contract rate moves to 7% and your payment is $827.77.How much did you originally borrow?
A) $17,037
B) $122,609
C) $ 125,000
D) $152,367
E) cannot be determined
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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Page 8
Chapter 7: Financing and Property Values
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3 Verified Questions
3 Flashcards
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Sample Questions
Q1) 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
Q2) 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
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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19 Verified Questions
19 Flashcards
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Sample Questions
Q1) Consider 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 Housing inflation of 7 percent,and the person is in the 30 percent tax bracket.If the Housing inflation rate was raised to 8 percent,how much would the annual cost of Housing change?
A) -$1,500
B) -$400
C) +$50
D) +$1,500
Q2) 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
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Chapter 9: Federal Housing Policies: Part 2
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12 Verified Questions
12 Flashcards
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Sample Questions
Q1) 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
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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Page 11
Chapter 10: The Secondary Mortgage Market
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40 Verified Questions
40 Flashcards
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Sample Questions
Q1) 10-11.FNMA and FHLMC are:
A) official departments of the U.S. government
B) official branches of the U.S. government
C) corporations originated through federal legislation
D) all of the above
Q2) 10-31.The mortgage-related security that goes the furthest in rearranging the cash flows from a pool of mortgages is:
A) mortgage pay-through bonds
B) collateralized mortgage obligations
C) mortgage backed bonds
D) mortgage pass-through securities
Q3) 10-28.The secondary mortgage market developed because it solved:
A) regional mismatch of sources and uses of funds
B) interest rate risk for mortgage originators
C) a and b
D) none of the above
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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) 11-21.A security for which the cash flows derived from mortgages are rearranged in terms of amount and timing is a:
A) mortgage-related security
B) collateralized mortgage obligation
C) mortgage-derivative security
D) pass-through security
E) all of the above
Q2) 11-10.If prepayments of a mortgage pool accelerate:
A) it is advantageous to the PO investor
B) it is disadvantageous to the PO investor
C) it is advantageous to the IO investor
D) it is disadvantageous to both the PO and the IO investors
Q3) 11-11.For traditional debt securities which of the following is false?
A) cash flows are fixed in terms of amount and payment date
B) for treasury bonds or (non-callable)corporate debt,an increase in the market rate of interest will lower their value
C) the longer the duration (similar to maturity)of the obligation,the less the changes in value as a result of a change in market rates
D) mortgage securities are very dissimilar to traditional types of debt
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Page 13
Chapter 12: Controlling Default Risk Through Borrower
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41 Verified Questions
41 Flashcards
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Sample Questions
Q1) 12-29."Significant compensating factors," after dual qualifying ratios have been computed in respect to gross income,include:
A) conservative attitude toward credit
B) at least 10% investment in the property
C) renting out use of the property
D) both a and b
Q2) 12-40.A provision that is typical for large residential real estate developments where land is used as collateral for a development loan is a:
A) release clause
B) conveyance clause
C) distribution clause
D) clause of dispatch
Q3) 12-25.The following are NOT of prime importance to an appraiser of property:
A) uniform building code standards
B) square footage and number of bedrooms
C) condition of electrical,plumbing,heating,etc.
D) both a and c
14
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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) 13-27.The approach based on the idea that a buyer will not pay more for a property than the amount it would take to build it from scratch is:
A) the income approach
B) the cost approach
C) the market approach
D) the scratch approach
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) 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
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7 Verified Questions
7 Flashcards
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Sample Questions
Q1) 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
Q2) 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
Q3) 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
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Chapter 15: Value, Leverage, and Capital Structure
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10 Verified Questions
10 Flashcards
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Sample Questions
Q1) 15-10.Residential income property is depreciated over:
A) 15 years
B) 30 years
C) 39 years
D) 27.5 years
E) 20 years
Q2) 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
Q3) 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
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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) 16-12.Section 1031 limits the amount of personality included in an exchange to ______________________ of the aggregate value of the replacement property:
A) 15%
B) 18%
C) 20%
D) 25%
E) none of the above
Q2) Income from a limited partnership is classified as:
A) active
B) passive
C) portfolio
D) deferred
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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18
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) 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) Thrifts specialize in:
A) residential loans
B) multi-family properties
C) commercial properties
D) none of the above
To
questions
Chapter 18: Acquisition, Development, and Construction Financing
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) 18-30.A rolling option would most likely be used by a:
A) speculator
B) construction company
C) developer
D) all of the above
Q2) 18-15.Payments made to municipalities or other local governments by the developer are:
A) impact fees
B) dollar based fees
C) cost recovery fee
D) exaction
Q3) 18-20.Construction loan provisions:
A) ensure the availability of the construction loan
B) are details designed to expedite the construction of the facility
C) are details of how the construction is to proceed and how the loan proceeds are to be disbursed
D) both b and c
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Page 20
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) 19-16.A sale-leaseback refers to the situation where:
A) a property is sold and the seller leases the property from the buyer
B) a property is sold and a repurchase agreement is signed
C) a property is sold and a subsequent tax-free exchange is made
D) a property that is leased is subsequently sold
Q2) 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
Q3) A lease that is a substitute for debt financing is:
A) operating lease
B) capital lease
C) financing lease
D) sale-leaseback lease
Page 21
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Chapter 20: Ownership Structures for Financing and Holding Real Estate
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) 20-13.A form of ownership structure for real estate that does NOT allow for personal liability is:
A) limited partnership
B) REITs
C) corporation
D) a and c
E) none of the above
Q2) 20-27.A characteristic of the C-corporation ownership of real estate is:
A) double taxation
B) access to large equity markets
C) limited liability
D) all of the above
E) none of the above
Q3) 20-12.REITs that invest in both equity properties and mortgages are called:
A) combination REITs
B) hybrid REITs
C) dual purpose REITs
D) none of the above
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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) 21-16.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
Q3) 21-12.The superior returns of real estate outlined by Ibbotson and Siegel was due to:
A) arbitrage pricing model
B) capital asset pricing model
C) restricted portfolio
D) new equilibrium theory
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23
Chapter 22: Liability, Agency Problems, Fraud, and Ethics in Real Estate Finance
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5 Verified Questions
5 Flashcards
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Sample Questions
Q1) 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
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) 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
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