REE 3043 EXAM 5 QUESTIONS AND ANSWERS 2026
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 - Answers - 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% - Answers - 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 - Answers - 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 - Answers - 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 - Answers - 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 - Answers - 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 -
Answers - 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 - Answers -
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 percent of PGI; and operating expenses and capital expenditures to be
38 percent and 4 percent, respectively, of effective gross income (EGI)
What is the implied first-year overall capitalization rate?
- 10.5 percent
- 11.0 percent
- 10.0 percent
- 9.5 percent - Answers - 9.5 percent
Given the following information, what is the required equity down payment?
Acquisition price: $800,000
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 - Answers - 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% - Answers - 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 - Answers - 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 - Answers - 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 - Answers - 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 - Answers - 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 -
Answers - 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 - Answers -
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 percent of PGI; and operating expenses and capital expenditures to be
38 percent and 4 percent, respectively, of effective gross income (EGI)
What is the implied first-year overall capitalization rate?
- 10.5 percent
- 11.0 percent
- 10.0 percent
- 9.5 percent - Answers - 9.5 percent
Given the following information, what is the required equity down payment?
Acquisition price: $800,000
