ARIZONA REAL ESTATE PRE-LICENSE
FINAL EXAM QUESTIONS WITH
VERIFIED ANSWERS
Q26) A strength of the sales comparison approach to value is that
A. old as well as new sales data may be used in the adjustment process.
B. the approach is based on the principle of substitution.
C. the approach is accurate with unique, special purpose properties.
D. sale prices can be compared in a neighbourhood, since all enjoy the same
approximate rate of appreciation. - ANSWER-B. the approach is based on the
principle of substitution.
Q27) A major employer relocates, leaving many homes in an area vacant and
unmaintained. This is an example of
A. physical deterioration.
B. functional obsolescence.
C. incurable economic obsolescence.
D. curable external obsolescence. - ANSWER-C. incurable economic obsolescence.
Q28) Two important tasks in identifying value through the cost approach are
A. estimating the cost of the land and its accrued depreciation.
B. estimating the value of the improvements and the obsolescence of the land.
C. estimating the cost and depreciation of the land and improvements.
D. estimating the cost of the land and the depreciation of the improvements. -
ANSWER-D. estimating the cost of the land and the depreciation of the
improvements.
Q29) In evaluating a loan application, a mortgage lender is most concerned about
A. the loan interest rate and loan term.
B. the property location and the amount of the borrower's down payment.
C. the applicant's financial capability and the value of the collateral.
D. the applicant's credit history and background. - ANSWER-C. the applicant's
financial capability and the value of the collateral.
Q30) Lenders use the loan-to-value ratio as a guideline in underwriting because
A. the property's value serves to measure the profitability of the loan.
B. the loan amount needs to be less than the property's value.
C. borrowers tend to inflate the true value of the property.
D. a full-price loan overfinances the borrower. - ANSWER-B. the loan amount needs
to be less than the property's value.
Q31) In the past, borrowers were often surprised by unexpected financing costs and
charges at closing. This situation has been largely corrected through disclosure
requirements mandated by which of the following laws?
A. Equal Credit Opportunity Act
B. Truth-in-Lending laws
C. National Disclosure Procedures Act
,D. Federal Fair Housing Laws - ANSWER-B. Truth-in-Lending laws
Q32) An important function of the secondary mortgage market is to
A. borrow funds from banks so the banks can make more loans.
B. issue tax certificates and sell them to primary lenders.
C. purchase pools of defaulted loans from lenders to keep them solvent.
D. sell mortgage-backed securities in order to buy pools of loans. - ANSWER-D. sell
mortgage-backed securities in order to buy pools of loans.
Q33) The Veteran's Administration assists numerous qualified mortgage loan
applicants because it
A. guarantees loans made by approved lenders.
B. insures loans made by approved lenders.
C. purchases loans made by approved lenders.
D. originates loans made by approved lenders. - ANSWER-A. guarantees loans
made by approved lenders.
Q34) A $300,000 loan has monthly interest payments of $2,000. Its annual interest
rate is:
A. 4
B. 6%
C. 8%
D. 10% - ANSWER-C. 8%
Q35) A lender determines that a homebuyer can afford to borrow $120,000 on a
mortgage loan. The lender requires an 80% loan-to-value ratio. How much can the
borrower pay for a property and still qualify for this loan amount?
A. $96,000
B. $106,000
C. $150,000
D. $160,000 - ANSWER-C. $150,000
Q36) A borrower grosses $4,000 per month and pays $600 monthly for debt
obligations. What monthly payment for housing expenses (principal, interest, taxes,
insurance) can this person afford based on an FHA debt ratio of 41%?
A. $760
B. $1,394
C. $1,040
D. $1,404 - ANSWER-C. $1,040
Q37) What is meant by "opportunity cost" when speaking of real estate as an
investment?
A. The financing charge associated with borrowing money to invest in real estate.
B. The return an investor could reasonably expect to earn from competing
investments.
C. The full cost of acquiring an investment property.
D. The financial risk of the investment. - ANSWER-B. The return an investor could
reasonably expect to earn from competing investments.
Q38) Which of the following items would affect a homeowner's adjusted basis?
, A. Installing a new furnace
B. Replacing a washing machine
C. Stripping and staining hardwood floors
D. Replacing a broken picture window - ANSWER-A. Installing a new furnace
Q39) One investment advantage of owning a principal residence is that the owner
may be able to
A. deduct mortgage interest and principal.
B. defer depreciation expenses.
C. deduct capital gain when the property is sold.
D. defer capital gain tax. - ANSWER-D. defer capital gain tax.
Q40) The taxable income from an investment property is estimated by using which of
the following formulas?
A. Cash flow minus depreciation
B. Net income plus depreciation
C. Net income minus debt service
D. Net income minus interest and depreciation - ANSWER-D. Net income minus
interest and depreciation
Q41) A property sells for $180,000 one year after it was purchased. If the annual
appreciation rate is 10%, how much did the original buyer pay for it?
A. $162,000
B. $163,636
C. $180,000
D. $198,000 - ANSWER-B. $163,636
Q42) An apartment building has an effective income of $150,000. Its bills total
$64,000, and depreciation is an additional $12,000. Interest payments on the loan
total $40,000, and principal payments are $5,000. What is the property's pre-tax
cash flow?
A. $29,000
B. $34,000
C. $41,000
D. $46,000 - ANSWER-C. $41,000
Q43) A property has a net income of $50,000, interest payments of $35,000,
principal payments of $3,000, and annual cost recovery of $7,000. The property's tax
rate is 28%. What is the property's annual tax on income?
A. $4,200
B. $3,360
C. $2,240
D. $1,400 - ANSWER-C. $2,240
Q44) A principal residence is bought for $180,000. A new porch is added, costing
$7,000. Five years later the home sells for $220,000, and the closing costs $18,000.
What is the homeowner's capital gain?
A. $15,000
B. $29,000
C. $33,000
FINAL EXAM QUESTIONS WITH
VERIFIED ANSWERS
Q26) A strength of the sales comparison approach to value is that
A. old as well as new sales data may be used in the adjustment process.
B. the approach is based on the principle of substitution.
C. the approach is accurate with unique, special purpose properties.
D. sale prices can be compared in a neighbourhood, since all enjoy the same
approximate rate of appreciation. - ANSWER-B. the approach is based on the
principle of substitution.
Q27) A major employer relocates, leaving many homes in an area vacant and
unmaintained. This is an example of
A. physical deterioration.
B. functional obsolescence.
C. incurable economic obsolescence.
D. curable external obsolescence. - ANSWER-C. incurable economic obsolescence.
Q28) Two important tasks in identifying value through the cost approach are
A. estimating the cost of the land and its accrued depreciation.
B. estimating the value of the improvements and the obsolescence of the land.
C. estimating the cost and depreciation of the land and improvements.
D. estimating the cost of the land and the depreciation of the improvements. -
ANSWER-D. estimating the cost of the land and the depreciation of the
improvements.
Q29) In evaluating a loan application, a mortgage lender is most concerned about
A. the loan interest rate and loan term.
B. the property location and the amount of the borrower's down payment.
C. the applicant's financial capability and the value of the collateral.
D. the applicant's credit history and background. - ANSWER-C. the applicant's
financial capability and the value of the collateral.
Q30) Lenders use the loan-to-value ratio as a guideline in underwriting because
A. the property's value serves to measure the profitability of the loan.
B. the loan amount needs to be less than the property's value.
C. borrowers tend to inflate the true value of the property.
D. a full-price loan overfinances the borrower. - ANSWER-B. the loan amount needs
to be less than the property's value.
Q31) In the past, borrowers were often surprised by unexpected financing costs and
charges at closing. This situation has been largely corrected through disclosure
requirements mandated by which of the following laws?
A. Equal Credit Opportunity Act
B. Truth-in-Lending laws
C. National Disclosure Procedures Act
,D. Federal Fair Housing Laws - ANSWER-B. Truth-in-Lending laws
Q32) An important function of the secondary mortgage market is to
A. borrow funds from banks so the banks can make more loans.
B. issue tax certificates and sell them to primary lenders.
C. purchase pools of defaulted loans from lenders to keep them solvent.
D. sell mortgage-backed securities in order to buy pools of loans. - ANSWER-D. sell
mortgage-backed securities in order to buy pools of loans.
Q33) The Veteran's Administration assists numerous qualified mortgage loan
applicants because it
A. guarantees loans made by approved lenders.
B. insures loans made by approved lenders.
C. purchases loans made by approved lenders.
D. originates loans made by approved lenders. - ANSWER-A. guarantees loans
made by approved lenders.
Q34) A $300,000 loan has monthly interest payments of $2,000. Its annual interest
rate is:
A. 4
B. 6%
C. 8%
D. 10% - ANSWER-C. 8%
Q35) A lender determines that a homebuyer can afford to borrow $120,000 on a
mortgage loan. The lender requires an 80% loan-to-value ratio. How much can the
borrower pay for a property and still qualify for this loan amount?
A. $96,000
B. $106,000
C. $150,000
D. $160,000 - ANSWER-C. $150,000
Q36) A borrower grosses $4,000 per month and pays $600 monthly for debt
obligations. What monthly payment for housing expenses (principal, interest, taxes,
insurance) can this person afford based on an FHA debt ratio of 41%?
A. $760
B. $1,394
C. $1,040
D. $1,404 - ANSWER-C. $1,040
Q37) What is meant by "opportunity cost" when speaking of real estate as an
investment?
A. The financing charge associated with borrowing money to invest in real estate.
B. The return an investor could reasonably expect to earn from competing
investments.
C. The full cost of acquiring an investment property.
D. The financial risk of the investment. - ANSWER-B. The return an investor could
reasonably expect to earn from competing investments.
Q38) Which of the following items would affect a homeowner's adjusted basis?
, A. Installing a new furnace
B. Replacing a washing machine
C. Stripping and staining hardwood floors
D. Replacing a broken picture window - ANSWER-A. Installing a new furnace
Q39) One investment advantage of owning a principal residence is that the owner
may be able to
A. deduct mortgage interest and principal.
B. defer depreciation expenses.
C. deduct capital gain when the property is sold.
D. defer capital gain tax. - ANSWER-D. defer capital gain tax.
Q40) The taxable income from an investment property is estimated by using which of
the following formulas?
A. Cash flow minus depreciation
B. Net income plus depreciation
C. Net income minus debt service
D. Net income minus interest and depreciation - ANSWER-D. Net income minus
interest and depreciation
Q41) A property sells for $180,000 one year after it was purchased. If the annual
appreciation rate is 10%, how much did the original buyer pay for it?
A. $162,000
B. $163,636
C. $180,000
D. $198,000 - ANSWER-B. $163,636
Q42) An apartment building has an effective income of $150,000. Its bills total
$64,000, and depreciation is an additional $12,000. Interest payments on the loan
total $40,000, and principal payments are $5,000. What is the property's pre-tax
cash flow?
A. $29,000
B. $34,000
C. $41,000
D. $46,000 - ANSWER-C. $41,000
Q43) A property has a net income of $50,000, interest payments of $35,000,
principal payments of $3,000, and annual cost recovery of $7,000. The property's tax
rate is 28%. What is the property's annual tax on income?
A. $4,200
B. $3,360
C. $2,240
D. $1,400 - ANSWER-C. $2,240
Q44) A principal residence is bought for $180,000. A new porch is added, costing
$7,000. Five years later the home sells for $220,000, and the closing costs $18,000.
What is the homeowner's capital gain?
A. $15,000
B. $29,000
C. $33,000
