Ch 13
Consider risk-return characteristics of Investments A-D, given above. Which of the following
statements is TRUE? - ANS-Investment B is preferred to Investment C
Consider two investments:
-Investment 1 has a 50% chance of producing a return of zero and a 50% chance of producing
a return of 40%
-Investment 2 has a 50% chance of producing a return of 10% and a 50% chance of producing
a return of 30%
Which of the following statements regarding the investments is TRUE? - ANS-Investment 1 is
riskier than Investment 2
Which of the following is NOT a component of lease rollover risk? - ANS-Liquidity risk
Consider an investment in which a developer plans to begin construction of a building one year
if, at that point, rent levels make construction feasible and the building will cost $1 million to
construct. There is a 50 percent chance that NOI will be $160,000 and a 50 percent chance that
NOI will be $80,000. Using the traditional approach, similar to the "highest and best use"
approach, what would be the land value of the property assuming a cap rate of 10 percent (12
percent discount rate and an NOI growth rate of 2 percent)? - ANS-$200,000
Using the same information as the question above, what would the land value be under the real
options approach? - ANS-$300,000
Risk due to potential tax law changes is referred to as: - ANS-Legislative risk
When an investor performs an investigation while considering acquisition of a property, this is
referred to as: - ANS-Due diligence
Which of the following refers to the risk real estate investors face stemming from changes in
general economic conditions? - ANS-Business risk
Which of the following BEST describes the process of "partitioning the IRR"? - ANS-Using the
IRR as a discount rate and determining how much of the present value comes from income and
resale
When sales exceed a breakpoint sales volume in a retail lease with percentage rent, the
additional rent is referred to as - ANS-Overage rent
Consider risk-return characteristics of Investments A-D, given above. Which of the following
statements is TRUE? - ANS-Investment B is preferred to Investment C
Consider two investments:
-Investment 1 has a 50% chance of producing a return of zero and a 50% chance of producing
a return of 40%
-Investment 2 has a 50% chance of producing a return of 10% and a 50% chance of producing
a return of 30%
Which of the following statements regarding the investments is TRUE? - ANS-Investment 1 is
riskier than Investment 2
Which of the following is NOT a component of lease rollover risk? - ANS-Liquidity risk
Consider an investment in which a developer plans to begin construction of a building one year
if, at that point, rent levels make construction feasible and the building will cost $1 million to
construct. There is a 50 percent chance that NOI will be $160,000 and a 50 percent chance that
NOI will be $80,000. Using the traditional approach, similar to the "highest and best use"
approach, what would be the land value of the property assuming a cap rate of 10 percent (12
percent discount rate and an NOI growth rate of 2 percent)? - ANS-$200,000
Using the same information as the question above, what would the land value be under the real
options approach? - ANS-$300,000
Risk due to potential tax law changes is referred to as: - ANS-Legislative risk
When an investor performs an investigation while considering acquisition of a property, this is
referred to as: - ANS-Due diligence
Which of the following refers to the risk real estate investors face stemming from changes in
general economic conditions? - ANS-Business risk
Which of the following BEST describes the process of "partitioning the IRR"? - ANS-Using the
IRR as a discount rate and determining how much of the present value comes from income and
resale
When sales exceed a breakpoint sales volume in a retail lease with percentage rent, the
additional rent is referred to as - ANS-Overage rent
