REE3043 Exam 4 Questions and Correct Answers

1 | Page




REE3043 Exam 4 Questions and Correct
Answers
Due-on-sale clauses are included in commercial mortgages
primarily to protect lenders from:




Interest rate risk




Default risk




Reinvestment risk




Prepayment risk Ans: Default risk




© 2025 All rights reserved

, 2 | Page


Consider a 30-year, 4 percent, fixed-rate, fully amortizing
mortgage with a yield maintenance provision. Relative to
this mortgage, a 10-year balloon mortgage with the same
contract interest rate and yield maintenance provisions will
primarily reduce the lender's:




Interest rate risk




Default risk




Reinvestment risk




Prepayment risk Ans: Interest rate risk




© 2025 All rights reserved

, 3 | Page


An interest-only balloon mortgage loan is commonly
referred to as a:




Mini-perm loan




Mezzanine loan




Land acquisition loan




Bullet loan Ans: Bullet loan


R0 = (NOI / Acquisition Price)


EDR = (Before-tax cash flow / Equity investment)


NIM = (Acquisition price / NOI)


© 2025 All rights reserved

, 4 | Page


GIM = (Acquisition price / Effective gross income)


OER = (Operating expenses / Effective gross income)


LTV = (Mortgage balance / Acquisition price)


DCR = (Net operating income / Debt service)


BER = (Operating expenses + Capital expenditures + Debt
service)/Potential gross income


Maximum debt service = NOI/Minimum DCR


-----------------------------------------------------------


The acquisition price of a property is $380,000. The loan
amount is $285,000. If the property's NOI is expected to be
$22,560, operating expenses $12,250, and the annual debt
service $19,987, the debt yield ratio (DYR) is approximately
equal to:




© 2025 All rights reserved