REE 3043 Exam 5 with accurate detailed answers ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
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 - correct answer✔✔Interest rate risk
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
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 ration (DYR) is approximately equal to:
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- none of the choices are correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- 0.0526 or 5.3%
||\\//|| ||\\//|| ||\\//||
- 0.0701 or 7.0%
||\\//|| ||\\//|| ||\\//||
- 0.079 or 7.9%
||\\//|| ||\\//|| ||\\//||
- 0.059 or 5.9% - correct answer✔✔0.079 or 7.9%
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
One of the main differences between residential mortgage loans and permanent financing
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
of commercial real estate lies in the allocation of liability in the case of default. In
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
commercial real estate, a special-purpose entity is created that shields that actual borrower ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
from personal liability. When a lender cannot lay claim to the personal assets of the
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
defaulted borrower, this type of loan is commonly referred to as a: ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
,- partially amortizing loan
||\\//|| ||\\//|| ||\\//||
- non-recourse loan
||\\//|| ||\\//||
- interest-only loan
||\\//|| ||\\//||
- mini-perm loan - correct answer✔✔non-recourse loan
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Using financial leverage on a real estate investment can be for the purpose of all of the
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
following except: ||\\//||
- being able to acquire the property
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- greater diversification
||\\//|| ||\\//||
- greater expected return on equity
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- reduction of financial risk for the leveraged investment - correct answer✔✔reduction of
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
financial risk for the leveraged investment ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
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 coverage ratio (DCR) is approximately equal to:
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- none of the choices are correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- 0.89
||\\//||
- 1.74
||\\//||
- 1.13
||\\//||
- 1.84 - correct answer✔✔1.13
||\\//|| ||\\//|| ||\\//|| ||\\//||
Income multipliers: ||\\//||
, - are useful as a preliminary analysis tool to weed out obviously unacceptable investment
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
opportunities
- are adequate as the sole indication of a property's investment worth
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- none of the choices are correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- relate the property's price or value to after-tax cash flow - correct answer✔✔are useful as a
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
preliminary analysis tool to weed out obviously unacceptable investment opportunities
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
The equity dividend rate: ||\\//|| ||\\//|| ||\\//||
- incorporates income tax considerations
||\\//|| ||\\//|| ||\\//|| ||\\//||
- expresses before-tax cash flow as a percent of the required equity capital investment
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- expresses net operating income as a percent of the required equity capital investment
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- expresses before-tax cash flow as a percent of the property's acquisition price - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔expresses before-tax cash flow as a percent of the required equity capital ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
investment
Ratio analysis: ||\\//||
- is generally adequate to fully assess an investment's expected return
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- serves as an initial evaluation of the adequacy of an investment's expected cash flows
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- requires cash flow estimates for the investment's entire expected holding period
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- includes estimating the net present value of the investment opportunity - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔serves as an initial evaluation of the adequacy of an investment's expected cash ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
flows
You are considering purchasing an office building for $2,500,000. You expect the potential
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
gross income (PGI) in the first year to be $450,000; vacancy and collection losses to be 9
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
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 - correct answer✔✔Interest rate risk
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
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 ration (DYR) is approximately equal to:
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- none of the choices are correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- 0.0526 or 5.3%
||\\//|| ||\\//|| ||\\//||
- 0.0701 or 7.0%
||\\//|| ||\\//|| ||\\//||
- 0.079 or 7.9%
||\\//|| ||\\//|| ||\\//||
- 0.059 or 5.9% - correct answer✔✔0.079 or 7.9%
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
One of the main differences between residential mortgage loans and permanent financing
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
of commercial real estate lies in the allocation of liability in the case of default. In
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
commercial real estate, a special-purpose entity is created that shields that actual borrower ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
from personal liability. When a lender cannot lay claim to the personal assets of the
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
defaulted borrower, this type of loan is commonly referred to as a: ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
,- partially amortizing loan
||\\//|| ||\\//|| ||\\//||
- non-recourse loan
||\\//|| ||\\//||
- interest-only loan
||\\//|| ||\\//||
- mini-perm loan - correct answer✔✔non-recourse loan
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Using financial leverage on a real estate investment can be for the purpose of all of the
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
following except: ||\\//||
- being able to acquire the property
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- greater diversification
||\\//|| ||\\//||
- greater expected return on equity
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- reduction of financial risk for the leveraged investment - correct answer✔✔reduction of
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
financial risk for the leveraged investment ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
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 coverage ratio (DCR) is approximately equal to:
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- none of the choices are correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- 0.89
||\\//||
- 1.74
||\\//||
- 1.13
||\\//||
- 1.84 - correct answer✔✔1.13
||\\//|| ||\\//|| ||\\//|| ||\\//||
Income multipliers: ||\\//||
, - are useful as a preliminary analysis tool to weed out obviously unacceptable investment
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
opportunities
- are adequate as the sole indication of a property's investment worth
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- none of the choices are correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- relate the property's price or value to after-tax cash flow - correct answer✔✔are useful as a
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
preliminary analysis tool to weed out obviously unacceptable investment opportunities
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
The equity dividend rate: ||\\//|| ||\\//|| ||\\//||
- incorporates income tax considerations
||\\//|| ||\\//|| ||\\//|| ||\\//||
- expresses before-tax cash flow as a percent of the required equity capital investment
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- expresses net operating income as a percent of the required equity capital investment
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- expresses before-tax cash flow as a percent of the property's acquisition price - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔expresses before-tax cash flow as a percent of the required equity capital ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
investment
Ratio analysis: ||\\//||
- is generally adequate to fully assess an investment's expected return
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- serves as an initial evaluation of the adequacy of an investment's expected cash flows
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- requires cash flow estimates for the investment's entire expected holding period
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
- includes estimating the net present value of the investment opportunity - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔serves as an initial evaluation of the adequacy of an investment's expected cash ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
flows
You are considering purchasing an office building for $2,500,000. You expect the potential
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
gross income (PGI) in the first year to be $450,000; vacancy and collection losses to be 9
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
