Real Estate Investment & Finance (Chapter Review Tests)

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Real Estate Investment & Finance (Chapter Review Tests)
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2010-03-26 11:38:51
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Real Estate Investment & Finance (Chapter Review Tests)
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  1. With a few exceptions, capital growth is usually recognized when the asset is:
    a. purchased
    b. improved
    c. appraised
    d. sold
    With a few exeptions, capital growth is usually recognized when the asset is sold.
  2. The percentage of a space inventory that is reconfigured in some way in a year is called the:
    a. turnover rate
    b. attrition rate
    c. churn rate
    d. rental rate
    The percentage of a space inventory that is reconfigured in some way in a year is called the churn rate.
  3. Capital ROI is defined as:
    a. how quickly an investment can be converted into cash.
    b. the return on an investment as appreciation in value over a period of time.
    c. the loss in value over time.
    d. the return on an investment while it is being held.
    Capital ROI is defined as the return on an investment as appreciation in value over a period of time.
  4. Each parcel of real estate has the characteristic of being:
    a. mortgaged
    b. rented
    c. valuable
    d. unique
    Each parcel of real estate has the characteristic of being unique.
  5. Which power gives the government right to take title to intestate property without heirs?
    a. police power
    b. emninent domain
    c. taxation
    d. escheat.
    Which power gives the government right to take title to intestate property without heirs? Escheat
  6. From an investor's standpoint, a fair rate of return, inflation rates, perceived risk, and profit motive are all factors involved in:
    a. building interest rates
    b. selecting investment properties
    c. building discount rates
    d. estimating capital gains
    From an investor's standpoint, a fair rate of return, inflation rates, perceived risk, and profit motive are all factors involved in selecting investment properties.
  7. Money left to compound at 12% interest will require approximately how many years to double in value?
    a. 7
    b. 6
    c. 5
    d. 4
    Money left to compound at 12% interest will require approximately how many years to double in value? 6 years
  8. Bank deposits placed with the Fed to aid bank liquidity are termed:
    a. savings accounts
    b. treasury notes
    c. demand deposits
    d. reserves
    Bank deposits placed with the Fed to aid bank liquidity are termed reserves.
  9. When a security is deemed to have a higher level of risk than normal, it should produce a:
    a. fluctuating yield
    b. more stable yield
    c. higher yield
    d. lower yield
    When a security is deemed to have a higher level of risk than normal, it should produce a higher yield.
  10. The burden of documentation for a transfer of title to a proeprty is placed on the:
    a. buyer and the seller
    b. buyer alone
    c. seller alone
    d. broker
    The burden of documentation for a transfer of title to a property is placed on the buyer and seller.
  11. Free transferability of interest is an advantage of:
    a. corporate ownership
    b. partnership ownership
    c. limited partnership owernship
    d. joint venture ownership
    Free transferability of interest is an advantage of corporate ownership.
  12. Subchapter S corporations are primarily established to eliminate:
    a. the disadvantages of proprietorships
    b. double taxation of income
    c. ERISA requirements on contributions
    d. transferability of interests
    Subchapter S corporations are primarily established to eliminate double taxation of income.
  13. A trust is a form of ownership by which a trustee holds assets for a:
    a. holder
    b. trustor
    c. beneficiary
    d. stockholder
    A trust is a form of ownership by which a trustee holds assets for a benficiary.
  14. An organizational form of ownership that issues shares of a beneficial interest is a:
    a. corporation
    b. Subchapter S corporation
    c. real estate investment trust
    d. syndication
    An organizational form of ownership that issues shares of beneficial interest is a real estate investment trust.
  15. One general category of real estate investment trusts is:
    a. equity trusts
    b. leverage trusts
    c. limited trusts
    d. joint ventures
    One general category of real estate investment trusts is equity trusts.
  16. A form of ownership available only to married couples is:
    a. joint tenancy
    b. tenancy in common
    c. tenancy by the entirety
    d. condominium interest
    A form of ownership that is available only to married couples is tenancy by the entirety.
  17. Observed physical obsolescence is classified as a form of:
    a. market data
    b. physical data
    c. financing data
    d. regulatory data
    Observed physical obsolescence is classified as a form of physical data.
  18. What is the result of the following mathematical problem using the algebraic logic system? 6 + 5 - 4 x 2
    A. 8
    B. 11
    C. 3
    D. 14
    C. 3
    (this multiple choice question has been scrambled)
  19. Which logic system is a strict sequentially based system in which a result is obtained after each operation?
    A. Chaining
    B. Rational
    C. Reverse Polish Notation
    D. Algebraic
    A. Chaining
    (this multiple choice question has been scrambled)
  20. Which symbol on a financial calculator is used in a loan amortization problem?
    A. [PMT]
    B. [NPV]
    C. [IRR]
    D. [CHS]
    A. [PMT]
    (this multiple choice question has been scrambled)
  21. To solve for the periodic payment of an amortizing loan, all of the following variables must be known except:
    A. amortization term
    B. principal amount
    C. present value
    D. interest rate
    C. present value
    (this multiple choice question has been scrambled)
  22. Based on the information below, which represents the monthly payment?
    Principal Amount = $2,500,000
    Annual Interest Rate = 11% Per Annum
    Amortization Term = 25 Years

    A. $25,000.00
    B. $24,489.72
    C. $24,502.83
    D. $24,611.23
    C. $24,502.83
    (this multiple choice question has been scrambled)
  23. Using the figures given, which represents the first year's interest portion of the payments?
    Principal Amount = $2,500,000
    Annual Interest Rate = 11% per annum
    Amortization Term = 25 years

    A. $274,010.44
    B. $269,531.10
    C. $247,997.65
    D. $251,093.77
    A. $274,010.44
    (this multiple choice question has been scrambled)
  24. Based on the information below, which represents the loan amount?
    Term of Loan = 12 years
    Monthly Payment = $932.16
    Annual Interest Rate = 10%

    A. $79,000
    B. $77,000
    C. $78,000
    D. $76,000
    C. $78,000
    (this multiple choice question has been scrambled)
  25. Even though a product has great utility, if it is in abundant quantity it will have little value. This statement describes the principle of:
    a. scarcity
    b. highest and best use
    c. purchasing power
    d. desire
    Even though a product has great utility, if it is in abundant quantity it will have little value. This statement describes the principle of scarcity.
  26. Criteria used to test a property's highest and best use include all of the following except:
    a. legality
    b. compatibility
    c. economic trends
    d. physical property
    Criteria used to test a property's highest and best use include all of the following except economic trends.
  27. When evaluating the environmental acceptance of a proposed project, the least important factor to consider is:
    a. the effect of sun blockage.
    b. local utilities.
    c. noise impacts.
    d. visual attractiveness
    When evaluating the environmental acceptance of a proposed project, the least important factor to consider is local utilities.
  28. The type of lease in which the lessee pays some or all operating expenses is a:
    a. gross lease
    b. net lease
    c. contract lease
    d. percentage lease
    The type of lease in which the lessee pays some or all oeprating expenses is a net lease.
  29. Ground leases are normally:
    a. long-term leases
    b. short-term leases
    c. percentage leases
    d. gross leases
    Ground leases are normally long-term leases.
  30. When examining the effect of lease provisions on the value of a property, the manager should interview the:
    a. accounting department head
    b. O&M supervisor
    c. leasing agents
    d. tenants and owners
    When examining the effect of lease provisions on the value of a property, the manager should interview the tenants and owners.
  31. The value of any factor of production or compenent of a property depends on how it enhances the overall value of the property. This statement is called the principle of:
    a. change
    b. highest and best use
    c. contribution
    d. variable proportions
    The value of any factor of production or compenent of a property depends on how it enhances the overall value of the property. This statement is called the principle of contribution.
  32. The principle that a buyer will pay no more for a property than the cost of an equally desirable alternative property is called the principle of:
    a. substitution
    b. change
    c. contribution
    d. highest and best use
    The principle that a buyer will pay no more for a property than the cost of an equally desirable alternative property is called the principle of substitution.
  33. Adjustments in the market comparison approach are made to the:
    a. subject property
    b. comparable property
    c. net operating income
    d. accounting basis
    Adjustments in the market comparison approach are made to the comparable property.
  34. During an appraisal, adjustments for site use density are best analyzed in relation to the ratio of:
    a. land to comparable land
    b. land to buildings
    c. land to traffic
    d. building to comparable building
    During an appraisal, adjustments for site use density are best analyzed in relation to the ratio of land to buildings.
  35. The gross rent multiplier considers all of the following except:
    a. income
    b. location
    c. vacancy
    d. property type
    The gross rent multiplier considers all of the following except vacancy.
  36. The process of converting net operating income into a value estimate is called:
    a. amortization
    b. capitalization
    c. income streaming
    d. reconciliation
    The process of converting net operating income into a value estimate is called capitalization.
  37. Given an overall capitalization rate of 11% and a net operating income of $90,000, which is the indicated value?
    A. $818,182
    B. $9,900
    C. $990,000
    D. $8,182
    A. $818,182
    (this multiple choice question has been scrambled)
  38. Given a capitalization rate of 12.25% and a purchase price of $83,400, what is the indicated income stream?
    A. $9,453
    B. $10,217
    C. $6,808
    D. $5,109
    B. $10,217
    (this multiple choice question has been scrambled)
  39. Capitalization involves the conversion to a capital sum of:
    a. future incomes
    b. gross annual income
    c. net operating income
    d. present value
    Capitalization involves the conversion to a capital sum of future incomes.
  40. Which is true concerning capitalization rates?
    A. Capitalization rates are not influenced by personal prejudice or human error.
    B. Selection of a rate requires knowledge of market indicators.
    C. Selection of a rate requires using different reasoning and assumptions used to derive the market rate.
    D. All elements of capitalization rates are objective.
    B. Selection of a rate requires knowledge of market indicators.
    (this multiple choice question has been scrambled)
  41. The residual technique of appraisal treats land parcels and improvements on them as:
    a. part of the same entity with a single value.
    b. an entity with a constant cash flow.
    c. separate entities with different cap rates.
    d. entities that together produce an income.
    The residual technique of appraisal treats land parcels and improvements on them as separate entities with different cap rates.
  42. All of the following are used to derive a blended capitalization rate except:
    A. equity fund source
    B. tax rates
    C. mortgage loan source
    D. yield expectation of the investor
    B. tax rates
    (this multiple choice question has been scrambled)
  43. Elements used in a calculation of the weighted average cost of capital include all of the following except:
    a. principal amount of the debt
    b. expected rate of return
    c. net operating income
    d. marginal tax rate
    Elements used in a calculation of the weighted average cost of capital include all of the following except expected rate of return.
  44. Elements used in calculating the expected mortgage rate include all of the following except:
    a. projected future rates
    b. recession conditions
    c. business growth or decline
    d. boom conditions
    Elements used in calculating the expected mortgage rate include all of the following except boom conditions.
  45. When referring to the five C's of credit, "capacity" refers to the:
    a. ability of the borrower to repay the loan
    b. fundamentl financial strength of the borrower
    c. value of assets pledged to the lender as protection from loss
    d. borrower's moral commitment and willingness to repay the funds
    When referring to the five C's of credit, "capacity" refers to the ability of the borrower to repay the loan.
  46. If an escalation clause is contained in a mortgage agreement, the lender is entitled to increase the interest rate:
    a. or change the due date on the basis of some established index
    b. or decrease the interest rate on the basis of some established index
    c. and/or hasten the due date upon the occurrence of some event
    d. and/or postpone the due date uon the occurrence of some event
    If an escalation clause is contained in a mortgage agreement, the lender is entitled to increase the interest rate and/or hasten the due date upon the occurrence of some event.
  47. Your loan constant is 14.36% for a $545,000 loan. What is the monthly debt service?
    a. $5,434.86
    b. $6,521.83
    c. $23,691.28
    d. $65,218.33
    b. $6,521.83
  48. A debt service ratio of 0.96 indicates that there is:
    a. more than sufficient income to make debt service payments
    b. insufficient income to make debt service payments
    c. exactly enough income to make debt service payments
    d. enough income to make debt service payments if expenses are reduced
    A debt service ratio of 0.96 indicates that there is insufficient income to make debt service payments.
  49. The two fundamental types of real estate loans are permanent financing and:
    a. temporary financing
    b. intangible financing
    c. transient loans
    d. construction loans
    The two fundamental types of real estate loans are permanent financing and construction loans.
  50. To reduce lender risk, a construction loan is often made with a:
    a. lower interest rate
    b. long-term payment schedule
    c. leasing percentage requirement
    d. standby loan commitment
    To reduce lender risk, a construction loan is often made with a standby loan commitment.
  51. When mortgage loan interest rates are extremely high, the form of financing used most often is the:
    a. deed of trust
    b. nonrecourse mortgage
    c. mortgage
    d. contract for deed
    When mortgage loan interest rates are extremely high, the form of financing used most often is the contract for deed.
  52. A mortgage instrument clause that gives the mortgagee the right to inspect a mortgaged property is known as a(n:)
    a. protection of the lender clause
    b. acceleration clause
    c. assignment of rents clause
    d. defeasance clause
    A mortgage instrument clause that gives the mortgagee the right to inspect a mortgaged property is known as a protection of the lender clause.
  53. Recording of deeds is required in order to:
    a. establish lien priority.
    b. protect the seller.
    c. establish dower rights.
    d. protect the public.
    Recording of deeds is required in order to establish lien priority.
  54. Under a contract for deed, the vendee possesses what form of title?
    a. none
    b. legal
    c. equitable
    d. installment
    Under a contract for deed, the vendee possesses equitable form of title.
  55. In which type of loan does the lender participate in both the cash flow and the equity of a project?
    a. bow tie
    b. bullet
    c. kicker
    d. participation
    In a bow tie loan the lender participates in both the cash flow and the equity of a project.
  56. Resale of a mortgage held by institutional investors to other institutional holders might be done for all of the following reasons except:
    a. to make funds available to the initial lender.
    b. to provide loans in market areas where not available.
    c. to enable the loan originator to earn broker fees.
    d. to enable risk sharing of loans for huge projects.
    Resale of a mortgage held by institutional investors to other institutional holders might be done for all of the above reasons, except to enable the loan originator to earn broker fees.
  57. In the loan package submitted to the potential lender, information on the ownership of the project and skills of individuals involved is given as part of the section on:
    a. financial projection
    b. project specifications
    c. project introduction
    d. disclosure
    In the loan package submitted to the potential lender, information on the ownership of the project and skills of individuals involved is given as part of the section on disclosure.
  58. Costs related to exterior maintenance and areas used by tenants' retail customers are billed to tenants through:
    a. percentage rents
    b. merchants' associations
    c. common area maintenance charges
    d. a chargeback system for ongoing services rendered.
    Costs related to exterior maintenance and areas used by tenant's retail customers are billed to tenants through common area maintenance charges.
  59. The revenue source that is unique to shopping centers, retail locations, and some specialized office and industrial buildings is:
    a. percentage rent
    b. service income
    c. additional rent
    d. vending machines
    The revenue source that is unique to shopping centers, retail locations, and some specialized office and industrial buildings is percentage rent.
  60. What is a fixed expense?
    a. income taxes
    b. ad valorem taxes
    c. cleaning costs
    d. maintenance costs
    Ad valorem taxes are fixed expenses.
  61. The total of fixed and variable costs is termed the:
    a. net operating income
    b. annual budget
    c. income schedule
    d. operating expense
    The total of fixed and variable costs is termed the operating expense.
  62. Net operating income is defined as:
    a. expense plus debt service
    b. expense less debt service
    c. income plus operating expense
    d. income less operating expense
    Net operating income is defined as income less operating expense.
  63. What is the approximate future value of $1,000,000 at 3.5% for 4 years?
    A. $1,167,523
    B. $1,127,523
    C. $1,147,361
    D. $1,147,523
    D. $1,147,523
    (this multiple choice question has been scrambled)
  64. In comparing the formulas for compounding and discounting, we find that they:
    a. work toward future value
    b. limit loan periods
    c. represent opposite processes
    d. differ in number of variables
    In comparing the formulas for compounding and discounting, we find that they represent opposite processes.
  65. What is the present value of $15,000 discounted at 7% for 5 years?
    A. $10,660
    B. $11,695
    C. $10,695
    D. $11,660
    C. $10,695
    (this multiple choice question has been scrambled)
  66. To be capitalized as an annuity, an investment must have a :
    a. steady income stream
    b. high rate of return
    c. set life expectancy
    d. short-term maturity
    To be capitalized as an annuity, an investment must have a steady income stream.
  67. Which is the basic formula used to calculate taxes?
    a. gross income plus tax deductions times tax rate
    b. gross income less tax credits times tax rate
    c. gross income less tax deductions times tax rate less tax credits
    d. gross income less tax credits times tax rate less tax deductions
    The basic formula used to calculate taxes is gross income less tax deductions times tax rate less tax credits.
  68. Which cost of home ownership is an allowable tax deduction?
    a. major home repairs
    b. insurance
    c. real property taxes
    d. utilities
    Real property taxes are an allowable tax deduction.
  69. Under the current tax law, depreciation is calculated on an office building using the straight line method over:
    a. 15 years
    b. 19 years
    c. 272 years
    d. 39 years
    Under the current tax law, depreciation is calculated on an office building using the straight line method over 39 years.
  70. Which provides an annual tax credit?
    a. rehabilitation credits
    b. certified historic structures
    c. low-income housing credits
    d. investment tax credits
    Low-income housing credits provide an annual tax credit.
  71. The expenditure that can be capitalized is a:
    a. roof repair
    b. parking lot resealing
    c. HVAC maintenance contract
    d. cooling tower replacement
    The expenditure that can be capitalized is a cooling tower replacement.
  72. Gain resulting from the forgiveness of debt is sometimes known as:
    a. long-term gain
    b. phantom gain
    c. ordinary gain
    d. capital gain
    Gain resulting from the forgiveness of debt is sometimes known as phantom gain.
  73. An example of a special-use property is a(n):
    a. office warehouse
    b. apartment building
    c. shopping center
    d. parking garage
    An example of a special-use property is a parking garage.
  74. Long-term interest loans and heavy front-end investments can be expected for a company that:
    a. occupies the building it owns
    b. leases to many small tenants
    c. leases several smaller buildings
    d. handles general use property
    Long-term interest loans and heavy front-end investments can be expectge for a company that occupies the building it owns.
  75. In leasing, the physical and spatial flexibilty become more important as:
    a. utility rates increase
    b. churn rates decrease
    c. space holdings decrease
    d. space holdings increase
    In leasing, the physical and spatial flexibility become more important as space holdings increase.
  76. A type of improvement that generally fails to contribute to a property's market value is:
    a. landscaping
    b. a drainage system
    c. curbing and walkways
    d. tenant improvements
    A type of improvement that generally fails to contribute to a property's market value is landscaping.
  77. In studying a property's physical feasibility, the best way to confirm the existence of easements and rights-of-way is to consult the:
    a. scaled survey as-built drawing
    b. feasbility consultant's report
    c. landscaping plan
    d. title search
    In studying a property's physical feasibility, the best way to confirm the existence of easements and rights-of-way is to consult the title search.
  78. During physical feasibility, a building is examined room by room to determine:
    a. interior functions
    b. project relationships
    c. design drawings
    d. improvement size
    During physical feasibility, a building is examined room by room to determine interior functions.
  79. The factor that tends to have the greatest impact on improved real property is:
    a. current economic trends
    b. the political climate
    c. local trends
    d. national trends
    The factor that tends to have the greatest impact on improved real property is national trends.
  80. Stages of a property life cycle include all of the following except:
    a. development
    b. routine administration
    c. moderinization / rehabilitation / conversion
    d. marketing
    Stages of a property life cycle include all of the following except marketing.
  81. Worn-out equipment indicates a requirement for:
    a. repair and maintenance
    b. capital expenditure
    c. foreclosure
    d. personnel training
    Worn-out equipment indicates a requirement for capital expenditure.
  82. Considerations in life cycle costing for a project include all of the following elements except:
    a. cost for the item's purchase and installation
    b. cost to operate and maintain the item
    c. the item's salvage value at the end of use
    d. the item's replacement value at the end of use
    Considerations in life cycle costing for a project include all of the following elements except the item's replacement value at the end of use.
  83. In a life cycle costing analysis, the effect of slight changes in loan rates or other variables can be easily checked with a:
    a. professional consultant
    b. manufacturer's representative
    c. set of computation tables
    d. spreadsheet program
    In a life cycle costing analysis, the effect of slight changes in loan rates or other variables can be easily checked with a spreadsheet program.
  84. Costs associated with rearranging facilities to support a change in the basic operation of the user department are charged back as:
    a. operating costs
    b. ongoing services
    c. one-time costs
    d. ancillary services
    Costs associated with rearranging facilities to support a change in the basic operation of the user department are charged back as one-time costs.
  85. In chargeback systems, perceptions of unfairness and lack of cooperation by users can be avoided if the facility manager:
    a. lowers operating costs
    b. hires more facilities staff
    c. charges all users equally
    d. promotes consumer education
    In chargeback systems, perceptions of unfairness and lack of cooperation by users can be avoided if the facility manager promotes consumer education.
  86. The central issue in an investment decision is the owner's:
    a. qualifications
    b. objectives
    c. background
    d. agressiveness
    The central issue in an investment decision is the owner's objectives.
  87. The first step in successfully managing an investment involves developing a:
    a. management hierarchy
    b. performance plan
    c. company mission
    d. performance evaluation
    The first step in successfully managing an investment involves developing a company mission.
  88. Businesses that have failed recently are notorious for their fixation on:
    a. long-term investment
    b. cautious investment
    c. short-term profits
    d. long-term ownership
    Businesses that have failed recently are notorious for their fixation on short-term profits.
  89. The manager can directly affect the value of a property through all of the following means except:
    a. leasing more space at market rates
    b. raising rents to new levels
    c. hiring more building staff
    d. reducing operating expenses
    The manager can directly affect the value of a property through all of the following means except hiring more building staff.
  90. Retention of tenants is based mainly on the property manager's ability to:
    a. provide good service
    b. administer lease conditions
    c. be diplomatic
    d. keep rents stable
    Retention of tenants is based mainly on the property manager's ability to provide good service.
  91. An effective manager best demonstrates creative problem-solving abilities in:
    a. dealing with uncertainty
    b. maintaining rationality
    c. communicating with the owner
    d. making nonprogrammed decisions
    An effective manager best demonstrates creative problem-solving abilities in making nonprogrammed decisions.

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