REE 3043 FINAL EXAM REVIEW
QUESTIONS AND ANSWERS.
Due-on-sales clauses are included in commercial mortgages primarily to protect lenders from: -
Answer Default Risk
Consider a 30-year, 7%, fixed rate, fully amortizing mortgage with a yield maintence provision.
Relative to this mortgage, a 10-year balloon mortgage with the same interest rate and yield
maintenance provisions will primarily reduce the lender's: - Answer Interest rate risk
Lockout provisions are primarily intended to reduce the lender's: - Answer Reinvestment risk
The tax-benefits associated with installment sales are: - Answer Captured exclusively by the
seller
Which of the following statements is most accurate? - Answer Joint ventures usually
decrease the amount of equity capital the developer/borrower must invest in the project
Which of the following financing structures provides for 100% financing? - Answer Complete
(land and building) sale-leaseback
Using financial leverage on a real estate investment can be for the purpose of all of the
following except: - Answer Reduction of financial risk for the leveraged investment
Which of these ratios is an indicator of the financial risk for an income property? - Answer
Both a and b, but not c
If the property's NOI is expected to be $22,560 operating expenses $12,250, and the debt
service $19,987, the debt coverage ratio (DCR) is approximately equal to: - Answer 1.13
With a mezzanine loan: - Answer the borrower's promise to pay is secured by the equity
interest in the borrower's limited partnership or limited liability company.
Double taxation is most likely to occur if the commercial properties are held in the form of a: -
Answer C Corporation
With regard to double taxation, distributions, and the treatment of the losses, general
partnerships are most like: - Answer Limited partnerships
, Special allocations of income or loss are avaliable if the form of ownership is a: - Answer
Limited partnership
Real estate syndicates traditionally have been legally organized most frequently as: - Answer
Limited partnerships
A real estate investment trust generally: - Answer none of the above
Which of the following forms of ownership involve both limited and unlimited liability: - Answer
Limited partnerships
Which statement is false concerning the limited partnership of ownership? - Answer The
limited partners cannot enjoy tax deduction benefits but the general partners can
Which of these lenders is most likely to provide a construction loan? - Answer Commercial
bank
Which of these loans is a life insurance company most likely to invest in? - Answer Large
office building loan (non construction)
Which of these financial firms is the least likely to invest in a large, long-term mortgage loan on
a shopping center? - Answer Mortgage broker
Income multipliers: - Answer are useful as preliminary analysis tool to weed out obviously
unacceptable investment opportunities
The overall capitalization rate calulated on a potential acquisition: - Answer is the reciprocal
of the net income multiplier
The operating expense ratio: - Answer expresses operating expenses as a percent of effective
gross income
The equity dividend rate: - Answer expresses before-tax cash flow as a percent of the
required equity captial investment
Ratio analysis: - Answer serves as an initial evaluation of the adequacy of an investment's
expected cash flows
QUESTIONS AND ANSWERS.
Due-on-sales clauses are included in commercial mortgages primarily to protect lenders from: -
Answer Default Risk
Consider a 30-year, 7%, fixed rate, fully amortizing mortgage with a yield maintence provision.
Relative to this mortgage, a 10-year balloon mortgage with the same interest rate and yield
maintenance provisions will primarily reduce the lender's: - Answer Interest rate risk
Lockout provisions are primarily intended to reduce the lender's: - Answer Reinvestment risk
The tax-benefits associated with installment sales are: - Answer Captured exclusively by the
seller
Which of the following statements is most accurate? - Answer Joint ventures usually
decrease the amount of equity capital the developer/borrower must invest in the project
Which of the following financing structures provides for 100% financing? - Answer Complete
(land and building) sale-leaseback
Using financial leverage on a real estate investment can be for the purpose of all of the
following except: - Answer Reduction of financial risk for the leveraged investment
Which of these ratios is an indicator of the financial risk for an income property? - Answer
Both a and b, but not c
If the property's NOI is expected to be $22,560 operating expenses $12,250, and the debt
service $19,987, the debt coverage ratio (DCR) is approximately equal to: - Answer 1.13
With a mezzanine loan: - Answer the borrower's promise to pay is secured by the equity
interest in the borrower's limited partnership or limited liability company.
Double taxation is most likely to occur if the commercial properties are held in the form of a: -
Answer C Corporation
With regard to double taxation, distributions, and the treatment of the losses, general
partnerships are most like: - Answer Limited partnerships
, Special allocations of income or loss are avaliable if the form of ownership is a: - Answer
Limited partnership
Real estate syndicates traditionally have been legally organized most frequently as: - Answer
Limited partnerships
A real estate investment trust generally: - Answer none of the above
Which of the following forms of ownership involve both limited and unlimited liability: - Answer
Limited partnerships
Which statement is false concerning the limited partnership of ownership? - Answer The
limited partners cannot enjoy tax deduction benefits but the general partners can
Which of these lenders is most likely to provide a construction loan? - Answer Commercial
bank
Which of these loans is a life insurance company most likely to invest in? - Answer Large
office building loan (non construction)
Which of these financial firms is the least likely to invest in a large, long-term mortgage loan on
a shopping center? - Answer Mortgage broker
Income multipliers: - Answer are useful as preliminary analysis tool to weed out obviously
unacceptable investment opportunities
The overall capitalization rate calulated on a potential acquisition: - Answer is the reciprocal
of the net income multiplier
The operating expense ratio: - Answer expresses operating expenses as a percent of effective
gross income
The equity dividend rate: - Answer expresses before-tax cash flow as a percent of the
required equity captial investment
Ratio analysis: - Answer serves as an initial evaluation of the adequacy of an investment's
expected cash flows
