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FINANCE 340 -- QUIZ 1V1

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					FINANCE 4500 -- QUIZ 1.1
A. ARCHITECT                                  M. FILTERING                                  Y. PRISONER’S DILEMMA
B. AXIAL THEORY                               N. FUNGIBLES                                  Z. PSYCHIC INCOME
C. BUILDING CODES                             O. GENTRIFICATION                             AA. REGENERATION
D. CBD                                        P. HETEROGENEITY                              BB. RENT THEORY
E. CERCLA                                     Q. HIGHEST AND BEST USE                       CC. ROUSE, JAMES
F. CONCENTRIC CIRCLE THEORY                   R. HOLLOW SHELL EFFECT                        DD. SARA
G. CREATIVITY                                 S. INPUT/OUTPUT ANALYSIS                      EE. SECTOR THEORY
H. DEVELOPER                                  T. INFRASTRUCTURE                             FF. SITE-VALUATION TAXATION
I. DOWNZONE                                   U. LAND USE SUCCESSION                        GG. SITUS THEORY
J. EFFECTIVE DEMAND                           V. MULTIPLE NUCLEI THEORY                     HH. VALUE-IN-USE TAXATION
K. EMINENT DOMAIN                             W. NONMONETARY INCENTIVES                     II. VON THUNEN
L. EXTERNALITIES                              X. NUISANCE CONCEPT                           JJ. ZONING



Match the appropriate terms above to each statement below by indicating the LETTER of the term on the blank. (2 pt. each)


____ 1. The theory that the poorest people live on the most expensive land and cannot afford to move.

____ 2. One of the first regional economists; first expressd the principle of highest and best use.

____ 3. As the city grows outward, higher income families move to the outer fringe; each income level then moves out
        to better housing, leaving the inner city to decay.

____ 4. Goods of a given class, any of which is as acceptable as another and capable of satisfying an obligation expressed
        in terms of that class.

____ 5. The ordinance by which local governments assign land uses.

____ 6. A theory that urban growth develops in circles around the central business district.

____ 7. A further step beyond rent, situs, and land use succession theories of spatial economics.

____ 8. An explanation of urban activity which focuses on how a property interacts with all surrounding properties.

____ 9. A designer of buildings and supervisor of construction.

____ 10. Real estate developer who used his company to create attractive urban environments to draw people downtown.

____ 11. The power of a public authority to condem and take property for public use on payment of “just compensation.”

____ 12. The property use that at a given point of time is deemed likely to produce the greatest net return in the foreseeable
         future, whether or not such a use is the current use of the property.

____13. Amendment to CERCLA passed in 1986. Provides guidance for what constitutes harzadous waste.


Only one answer to each of the following is the best answer. Please circle the letter of each best answer. (2 pts each)

14. One of the examples during the lecture on cost of capital described a situation in which a commercial banker in Missouri
    made loans 7% over prime for $1,000,000 each with 12 month maturities; what was that situation?

                  A.   The inflation rate was 20%.
                  B.   The loan was for illegal purposes.
                  C.   The builder did not understand the mortgage markets.
                  D.   The construction loan was exhausted before project completion.
                  E.   These loans were only made to inexperienced builders.
                  F.   These high-rate sub-prime loans were made to Kansans.
FINANCE 4500 -- QUIZ 1.1                                                                                                    Page 2


15. If the First National Bank (FNB) makes a loan for $100,000 at 6.5%, and subsequently sells off 90% of that loan in
    the secondary market for 5%, how much will the FNB earn in year one on its remaining investment?

                  A. 5%                        D. 11.5%
                  B. 5.75%                     E. 20%
                  C. 6.5%                      F. Cannot be determined without additional information.

16. Annual new real estate investment composes what percent of annual new gross domestic investment?

                  A. 10%                       C. 25%
                  B. 20%                       D. 50%

17. Which of the following corporate finance concept(s) is/are especially important to a real estate course?

                  A.    Leverage               E. All of the above
                  B.    Cost of Capital        F. None of the above
                  C.    Valuation              G. A and C only
                  D.    Present Value

18. Based upon the lecture on Finance 4500 prerequisites, identify why an investor would pay more for a property than the
    seller has asked for the property?

                  A.   An investor would not want to take advantage of a seller who was uninformed about market values.
                  B.   Once the appraisal has been completed, both buyer and seller will know the real value of the property.
                  C.   The law requires that a trustee must pay full market value for a property regardless of asking price.
                  D.   The mortgage lender will insist that both the buyer and seller are fully informed as to true market value.
                  E.   A purchase price higher than asking price could create a higher rate of return by using greater leverage.

19. During the lecture on the types of value, the “Spark” picture was used to illustrate which type of value:

                  A. Aesthetic                          C. Market
                  B. Investment                         D. Use

20. During the lecture on 4500 prerequisites, how did the workout loan officer at Wachovia Bank adjust the loan
    terms to create a performing loan:

                  A.   Lower annual cash interest rate
                  B.   Debt repayment through accrual
                  C.   Longer maturity on the modified loan
                  D.   Lower loan payment
                  E.   All of the above
                  F.   None of the above
FINANCE 4500 -- QUIZ 2.1

A. ABSTRACT OF TITLE                              Q. ESTATE FOR YEARS                                GG. POSSESSION
B. ACCRETION                                      R. FEE SIMPLE                                      HH. QUITCLAIM DEED
C. ADVERSE POSSESSION                             S. FINANCIAL RISK                                  II. REAL RETURN
D. BUSINESS RISK                                  T. GENERAL WARRANTY DEED                           JJ. RESTRICTIVE COVENANTS
E. CONSTRUCTIVE NOTICE                            U. HURDLE ROR                                      KK. RIPARIAN RIGHTS
F. DEED                                           V. INFLATION PREMIUM                               LL. RISK PREMIUM
G. DEFEASIBLE FEES                                W. INTERNAL RATE OF RETURN                         MM. S CORPORATION
H. DEFENSE OF TITLE                               X. INTESTATE                                       NN. SECURITY INTEREST
I. DISPOSITION                                    Y. JOINT TENANCY                                   OO. SPECIAL WARRANTY DEED
J. EASEMENT                                       Z. LAW OF NUISANCE                                 PP. SUBSURFACE RIGHTS
K. EASEMENT BY APPURTENANT                        AA. LIFE ESTATE                                    QQ. TENANCY IN COMMON
L. EASEMENT BY PRESCRIPTION                       BB. LITTORAL RIGHTS                                RR. TENANCY BY ENTIRETY
M. EASEMENT IN GROSS                              CC. MECHANIC'S LIEN                                SS. TITLE
N. ENJOYMENT                                      DD. NON-PECUNIARY RETURN                           TT. TITLE INSURANCE
O. ESCHEAT                                        EE. NONPOSSESSORY INTEREST                         UU. TITLE CLOSING
P. ESTATE AT SUFFERANCE                           FF. POLICE POWER                                   VV. TRUST

Match the appropriate terms above to each statement below by indicating the LETTER of the term on the blank. (1 pt. each)

____   1. An easement that is not attached to any parcel of land but is merely a personal right to use the land of another.

____ 2. The incremental return that must be given to an investor to induce him or her to defer consumption during a period of
         inflation.

____   3. A written instrument that conveys title to real property.

____ 4. The most extensive interest in land recognized by law.

____ 5. A claim that attaches to real estate to protect the right to compensation of one who performs labor or provides
       materials in connection with construction.

____ 6. The hazard of loss that managers of an enterprise assume in attempting to operate it successfully and produce profits
        over a period of time.

____ 7. Limitations contained in a deed that restricts or regulates the use of the real property.

____ 8. Having left, before dying, no will for the disposition of one’s property.

____ 9. Rights of property owners whose land abuts large lakes or an ocean that permits use of the water without restriction.

____ 10. An interest in land other than a fee or leasehold (i.e. an easement, license, or profit).

____ 11. The leasehold interest of a tenant in property that automatically renews itself for the period specified in the
       original lease.

____ 12. A deed in which the grantor makes no warranties to the grantee.

____ 13. The highest form of deed a grantor can give a grantee in that the grantor is liable for any title defects that were
       created during his or her period of ownership and during the periods of all earlier ownerships.

____ 14. The discount rate at which investment has zero net present value.

____ 15. The return required by an investor to induce him or her to refrain from immediate consumption and utilize his or
       her capital for investment purposes.
Finance 4500 – Quiz 2.1

USE THE FOLLOWING INFORMATION TO COMPUTE THE RATIOS FOR QUESTIONS 16 - 22. (3 PTS EACH)

SHOW YOUR WORK ON THIS SHEET. IDENTIFY THE NUMERATORS, DENOMINATORS AND RATIOS.

PLACE YOUR ANSWERS IN THE BLANKS PROVIDED.

      VALUE                         $400,000
      MORTGAGE                      $300,000
      DEBT SERVICE (i=k)               7.0%
      EGI                            $54,000
      OPERATING EXPENSE              $15,000
      APPRECIATION (g)                 4.0%
      GPA                               3.25
      LAND VALUE                      10.0%
      P/E                                20
      VACANCY                         10.0%
      MPG                                24
      SELLING EXPENSE                     0



16.   LTVR = L/V = ____________ / ____________ = __________


17.   DCR = NOI/DS = ____________ / ____________ = __________


18.   OER = OE/EGI = ____________ / ____________ = __________


19.   BER= (OE + DS)/GPI = (____________ + ____________) / ____________ = __________


20.   ROR= NOI/V = ____________ / ____________ = __________


21.   ROE= CF/Eq = ____________ / ____________ = __________


22.   ROE + g = (CF + g)/Eq = (____________ + ____________) / ____________ = __________



Based upon the lecture given by Brandon Mann, which of the following statements is/are true or false? (1 pt each)


23.   T   F     Brandon was born and raised in St. Louis.

24.   T   F     Brandon earned his BS at Truman State and his MBA at Washington University.

25.   T   F     Colliers serves 20,000 units and opens a new office every 80 minutes.

26.   T   F     Cold Stone is one of Colliers’ major clients.
 FINANCE 4500 -- QUIZ 3.1
A.   ACCRUED DEPRECIATION                          O.    FUNCTIONAL DEPRECIATION                    CC.   POTENTIAL GROSS INCOME
B.   ANTICIPATION                                  P.    GROSS INCOME MULTIPLIER                    DD.   PROPERTY CHARACTERISTICS
C.   APPRAISAL                                     Q.    GROSS RENTAL RECEIPTS                      EE.   RECAPTURE PREMIUM
D.   BAND OF INVESTMENT APPROACH                   R.    HIGHEST AND BEST USE                       FF.   REPLACEMENT COST
E.   CAPITALIZATION RATE                           S.    INCOME APPROACH                            GG.   REPLACEMENT RESERVES
F.   COMPARABLE PROPERTIES                         T.    INCURABLE DEPRECIATION                     HH.   REPRODUCTION COST
G.   CONTRIBUTION                                  U.    INFLATION PREMIUM                          II.   SALES COMPARISON APPROACH
H.   COST APPROACH                                 V.    LEASE CONCESSIONS                          JJ.   SCARCITY
I.   CURABLE DEPRECIATION                          W.    LEASE EXPIRATION SCHEDULE                  KK.   SINKING FUND CONCEPT
J.   DEFERRED MAINTENANCE                          X.    LETTER REPORT                              LL.   STABILIZED NOI
K.   EFFECTIVE DEMAND                              Y.    MARKET VALUE                               MM.   SUBSTITUTION
L.   ELLWOOD TECHNIQUE                             Z.    NARRATIVE REPORT                           NN.   TRANSFERABILITY
M.   EXTERNAL DEPRECIATION                         AA. OPERATING EXPENSES                           OO.   UTILITY
N.   EXTERNALITIES                                 BB.   PHYSICAL DEPRECIATION                      PP.   VACANCY

 Match the appropriate terms above to each statement below by indicating the LETTER of the term on the blank. (1 pt. each)

 ____ 1. Money periodically set aside for the purpose of debt repayment together with the interest earned by such money.

 ____ 2. Method of finding an appropriate cap rate by developing a weighted average of the rates to be paid on debt and equity.

 ____ 3. Property value is estimated by subtracting accrued depr. from reproduction cost new and then adding value of the land.

 ____ 4. When applied to the gross rental receipts (GRR), gives an indication of value of an income producing property.

 ____ 5. The desire to buy combined with the ability to pay.

 ____ 6. The difference between reproduction cost new or replacement cost new and the present worth of the improvements.

 ____ 7. An advanced method of developing a capitalization rate based on the proportion of investment represented by debt and
         equity and on the expected change in property values over the holding period.

 ____ 8. The right to transfer property from one owner to another without legal constraints.

 ____ 9. For any investment that will not produce income in perpetuity, the capital must be recouped over life of the investment.

 ____ 10. One of the factors required for an object to have value; each parcel of land is unique and some are more desirable.

 ____ 11. An appraisal concept that real estate value is created by the expectation of benefits to be received in the future.

 ____ 12. Physical or functional in which the cost to cure is less than, or equal to, the value added to the property.

 ____ 13. The property use that at a given point of time is deemed likely to produce the greatest net return in the foreseeable future,
          whether or not such use is the current use of the property.

 ____ 14. Valuation principle that states that the value of an item depends on how much it contributes to the value of the whole.

 ____ 15. The most probable price expressed in terms of money that a property would bring if exposed for sale in the open market, in
          an arm’s length transaction between a willing seller and a willing buyer, both of whom are knowledgeable about the property.
 ____ 16. Benefits given to a tenant to induce him or her to enter into a lease.
 ____ 17. The cost of creating a building or improvement having equivalent utility to an existing improvement, on the basis of current
          prices and using current standards of material and design.
 ____ 18. An appraisal concept to the effect that when several goods with substantially the same utility are available, the one with the lowest
          price attracts the greatest demand.
 ____ 19. Diminished value of improved real estate owing to negative environmental forces in the surrounding area.

 ____ 20. Loss of value suffered by improvements on land resulting from wear and tear, disintegration, and the action of the
 elements.
USE THE FOLLOWING INFORMATION TO COMPUTE THE RATIOS FOR QUESTIONS 21 - 24. (2 pts. each)

      NUMBER OF UNITS                         500                         OPERATING EXPENSES                             $800,000
      VACANCY                              10.0%                          ANNUAL DEBT SERVICE                            $900,000
      ANNUAL RENT PER UNIT                 $5,000                         ANNUAL DEPRECIATION                            $250,000

21.      What is the effective gross income?

                   A.       1,600,000                   C.         2,250,000
                   B.       1,800,000                   D.         2,500,000

22.      What is the net operating income?

                   A.       400,000                     C.         1,200,000
                   B.       550,000                     D.         1,450,000

23.      What is the before-taxes cash flow?

                   A.       400,000                     C.         650,000
                   B.       550,000                     D.         1,200,000

24. If the cap rate is 8.5%, what is the market value indicator using the income approach? _________________


Use the following information to answer questions 25 and 26 (3 pts. each): A converted, two-story office property has inadequate
access because there is no elevator and no disability access to the second floor. The following data are provided:

Total rent per year, as is, without elevator            $8,000                Operating expenses (in either situation)              $4,000
Total rent per year with proper access                  $10,000               Building capitalization rate                          10.5%

25.      Calculate the increase in value resulting for the installation of an elevator.




26.      The elevator required to make the upper level accessible would cost $40,000. What type of depreciation or obsolescence?

         A.        External                             C.         Physical
         B.        Incurable                            D.         Curable


Use the following information to answer questions 27 and 28.

                            Price                            NOI                       Capitalization rate (ROR)

         Sale 1             $595,000                      $62,500                      ____________________

         Sale 2             $220,000                      $20,000                      ____________________

         Sale 3             $430,000                      $44,900                      ____________________

         Sale 4             $500,000                      $52,300                      ____________________

         Sale 5             $1,140,000                  $125,000                       ____________________

27.      Calculate the capitalization rate for each sale property in the space provided. (3 pts.)


28.      A subject property has a NOI of $50,000; calculate the indicated value of the subject property using the market ROR. (3 pts.)
FINANCE 4500-- QUIZ 4.1

A.   ABSORPTION SCHEDULE                        O.    GENERAL AGENT                            CC.    PASS-THROUGH
B.   AGENT                                      P.    IMPLIED AGENCY                           DD.    PASSIVE INVESTOR
C.   ASSET MANAGEMENT                           Q.    IREM                                     EE.    PORTFOLIO RETURNS
D.   BOMA                                       R.    INSTITUTIONAL INVESTOR                   FF.    PORTFOLIO MANAGEMENT
E.   BROKER                                     S.    LETTER OF INTENT                         GG.    PRINCIPAL
F.   BROKERAGE                                  T.    LISTING AGREEMENT                        HH.    PROPERTY MANAGEMENT
G.   COMMISSION                                 U.    MAINTENANCE SCHEDULE                     II.    PRORATION
H.   CONTRACT RENT                              V.    MANAGEMENT CONTRACT                      JJ.    REALTOR
I.   CONVERSION                                 W.    MANAGEMENT PLAN                          KK.    REHABILITATION
J.   DIVERSIFICATION                            X.    MARKET STUDY                             LL.    RENT SCHEDULE
K.   ESCALATION CLAUSE                          Y.    MARKETING STUDY                          MM.    RENTABLE AREA
L.   EXCLUSIVE AGENCY                           Z.    MULTIPLE LISTING SERVICE                 NN.    RESIDENT MANAGER
M.   FEASIBILITY STUDY                          AA.   NONRAID CLAUSE                           OO.    SALES/LEASING SCHEDULE
N.   FIDUCIARY                                  BB.   OPEN LISTING                             PP.    TIME SHARING

Match the appropriate terms above to each statement below by indicating the LETTER of the term on the blank. (1 pt. each)

____ 1. The estimated schedule or rate at which properties for sale or lease can be marketed in a given locality.

____ 2. The relationship between an agent and whom she represents, i.e., the duty to act for their benefit.

____ 3. A trade association of owners and managers of apartment and office buildings.

____ 4. Lease provision that permits the landlord to pass through increases in real estate taxes and operating expenses.

____ 5. Table of all rents due on a property.

____ 6. Estimates the number of expected sales or leases during specified time intervals.

____ 7. A more comprehensive form of property management incorporating institutional and corporate planning perspectives.

____ 8. Combination of a market study and economic study that provides project environment and expected return knowledge.

____ 9. The contract between the seller of the property and the real estate broker.

____ 10. The rents specified in a lease agreement.

____ 11. Agreement between the owner of a property and the firm that undertakes to manage it for a fee.

____ 12. Change in the use of real property by altering the improvements.

____ 13. The measurement of leased space that excludes any space, such as elevator shafts, not actually available to the tenants.

____ 14. Offering a property for sale through a real estate broker with the understanding that the broker has no exclusive right of sale.

____ 15. A division of expenses so that the seller and buyer each pays the portion covering his or her period of ownership.

____ 16. One who retains an agent to act for him or her.

____ 17. Analyzes general demand for a single type of real estate product for a particular project.

____ 18. Designates the broker as the only agent to sell or lease the subject property.

____ 19. An affiliate of NAR, whose purpose is to promote professionalism in the field of property management.

____ 20. A detailed listing of all maintenance procedures and the times when they are performed.
FINANCE 4500-- QUIZ 4.1

21. Based on the commercial brokerage lectures, circle the letter of the following statement(s) which is/are true? (4 pts.)

                  A.      Prudent investors have high motivations.
                  B.      Passive investors prefer long-term leases.
                  C.      Aggressive investors are higher risk/managerial investors.
                  D.      Passive investors want low risk tenants.
                  E.      An aggressive investor expects normal losses.
                  F.      Prudent investors want low-risk/high-quality properties.
                  G.      Prudent investors expect customary problems and losses.
                  H.   Aggressive investors have surplus funds for investing


22. A $160,000 house is sold by Mary J., but John D. listed the house. Both are agents for ABC Realty which normally charges a
    6% commission. Answer the following questions concerning commission splits. (1 pt. each)

         a. How much would Mary J. make?

         b. How much would ABC Realty make?

         c. How much would go to the Missouri Real Estate Commission?

         d. If ABC were a REMAX affiliate, how much commission would Mary J. make?

         e. If ABC were a REMAX affiliate, how much would ABC Realty make?

         f. How much would go to the MLS?                                                                              ______________


Over the past three weeks, we have had three Professors for a Day speak to the class: (A) Bill Schultz, (B) Mark Branstetter, and (C)
John Cohen. Each of the following statements is best attributed to one of these three; circle the appropriate letter below.

A        B        C                 23. Presently specializes in negotiating with cities to redevelop distressed urban areas.

A        B        C                 24. Worked for Colliers Turley Martin Tucker

A        B        C                 25. Previously was an asset manager for Northwestern Mutual Life Insurance Co.

A        B        C                 26. Began his career negotiating tax appeals.

A        B        C                 27. Presently building a 600,000 sf warehouse in Illinois.

A        B        C                 28. Believes his purpose is to maximize profitability through entrepreneurial strategies.

A        B        C                 29. Industrial broker who manages RED Brokerage in Kansas City.

A        B        C                 30. Earned his MBA in night school at DePaul University.

A        B        C                 31.      Began his career with Trammel Crow.

A        B        C                 32. Presently manages the Panatoni office in St. Louis.


Extra Credit (2pts)

Assuming a FV in 10 years of $2.6 million and an expected IRR of 18%, what must be the initial down payment or PV?
FINANCE 4500 -- QUIZ 5.1
A.   AMORTIZATION                      P.    GAP FINANCING                                 EE.    PERMANENT LOAN COMMITMENT
B.   BALLOON LOAN                      Q.    GNMA                                          FF.    PITI
C.   BLANKET MORTGAGE                  R.    JOINT VENTURE                                 GG.    POSITIVE LEVERAGE
D.   COMMERCIAL MBS                    S.    LIEN                                          HH.    PREPAYMENT PENALTY
E.   DEBT SERVICE                      T.    LIQUIDITY                                     II.    PRIMARY FINANCIAL MARKET
F.   DEFAULT CLAUSE                    U.    MORTGAGE BANKER                               JJ.    PURCHASE MONEY MORTGAGE
G.   DISCOUNT POINTS                   V.    MORTGAGE BROKER                               KK.    RAM
H.   DISINTERMEDIATION                 W.    MORTGAGE CONSTANT (K)                         LL.    REDLINING
I.   DUE ON SALE CLAUSE                X.    MORTGAGE INSURANCE                            MM.    REIT
J.   FFLMC                             Y.    MORTG.-BACKED SECURITY (MBS)                  NN.    RESOLUTION TRUST COMPANY (RTC)
K.   FHA                               Z.    NEGATIVE AMORTIZATION                         OO.    SAM
L.   FHLBB                             AA.   NEGATIVE LEVERAGE                             PP.    SECONDARY MORTGAGE MARKET
M.   FHLBS                             BB.   NONRECOURSE LOAN                              QQ.    SECURITY INTEREST
N.   FHLMC                             CC.   OPEN-END MORTGAGE                             RR.    SERVICING ACTIVITIES
O.   FNMA                              DD.   PASS-THROUGH (MORTGAGE)                       SS.    WRAPAROUND MORTGAGE

Match the appropriate terms above to each statement below by indicating the LETTER of the term on the blank. (1 pt. each)

____ 1. The legal interest in real estate represented by a mortgage (i.e. an interest created for the purpose of securing a loan).

____ 2. Percentage of the original loan balance represented by constant periodic mortgage payments.

____ 3. A mortgage that is taken by a seller from a buyer in lieu of a down payment (i.e. seller helps finance the purchase).

____ 4. An undertaking by a lender to make a long-term loan on real estate on specified conditions.

____ 5. Total payment on an amortizing, interest bearing loan, when taxes and insurance are escrowed.

____ 6. A corporation that provides liquidity by creating a secondary mortgage market for conventional loans.

____ 7. Secondary financing in which the face amount of the 2nd loan is equal to the balance of the 1st loan plus new financing.

____ 8. A loan provision that requires the lender to look only to the security to satisfy the debt and not to the borrower.

____ 9. Financing provided by a second lender when the first lender advances only the floor portion of a floor-to-ceiling loan.

____ 10. Term used to describe the process whereby new capital is created by sale of newly issued stocks, bonds, or other investments

____ 11. Securitization of pools of mortgages that are collateralized by investment properties.

____ 12. A federal government organization created to liquidate properties that came into federal hands as part of the S&L collapse.

____ 13. A mortgage covering more than one property.

____ 14. An administrative charge made by the lender that is a direct cost to the buyer.

____ 15. The collection and distribution of PITI on mortgage loans.

____ 16. A government agency regulated by HUD, which provides a secondary mortgage market for special-assistance loans.

____ 17. The right to hold property as security until the debt that secures it is paid.

____ 18. Periodic payment on a loan, with a portion of the payment for interest and the balance for amortization of principal.

____ 19. A division of Housing and Urban Development that ensusures mortgage loans.

____ 20. A security that is collateralized by one or a package of mortgage loans.
Finance 4500 - - Quiz 5.1

USE THE FOLLOWING INFORMATION TO COMPUTE THE ANSWER FOR EACH QUESTION 21-25. (2 PTS EACH)
SHOW YOUR WORK ON THIS SHEET AND PLACE YOU ANSWER IN THE BLANK PROVIDED.

      PURCHASE PRICE                      $600,000
      MORTGAGE REQUESTED                  $450,000
      i                                      6.5%
      MONTHLY PAYMENT                       $3,360
      GPI                                 $100,000
      OPERATING EXPENSE                    $45,000
      APPRECIATION (g)                       6.0%
      VACANCY                               10.0%
      LAND VALUE                            10.0%
      SELLING EXPENSE                        7.0%
      DEFERRED MAINTENANCE                 $40,000
      BANK'S DESIRED DCR                        1.2


21. What is the project’s LTVR?             ___________

22. What is the project’s DCR?              ___________

23. What is the maximum loan amount your bank would loan on this property?

24. Would you make this loan; why?



25.     Is the leverage positive or negative? Show your work.


Based upon the lecture given by Bob Wright from Midland Loan Services (MLS), which of the following is/are
True or False? Circle your answer. (1 PT Each)

T       F        26. He began his career working for Aetna Life Insurance Co.

T       F        27. Most of his work time today is spent on the road soliciting new business.

T       F        28. His primary clients are the commercial banks that originate the home mortgage loans that MLS pools.

T       F        29. New employees who are recent college graduates usually start their careers at MLS in the syndication department.

T       F        30. The recent declines in interest rates have caused MLS business to almost double.

T       F        31. Total CMBS outstanding have increased to about half of total bank holdings of commercial mortgage debt.

COMPUTE THE ANSWERS FOR QUESTIONS 32 - 33. SHOW YOUR WORK. (2 PTS EACH)

The Jones family has a gross monthly income of $5,000; take home pay of $3,800; and other monthly payments of $1,200 per month.
They are considering the purchase of a $180,000 house whose annual insurance is $750 and annual taxes are $1,500. Current market
conditions dictate a 6.25% interest rate (K = 7.39%) on a 30 year mortgage. Calculate the following:

32.     Maximum conventional loan for which they could qualify, if they had no other monthly payments.         ________________

33.     Maximum conventional loan for which they can qualify?
FINANCE 4500 -- QUIZ 6.1

A.   ACRS                                 O.    INSTALLMENT SALE                            CC.    SALE-LEASE-BACK
B.   AD VALOREM TAX                       P.    INVESTMENT TAX CREDIT                       DD.    SMART BUILDING
C.   ARBITRAGE PRICING MODEL              Q.    LIMITED PARTNERSHIP                         EE.    SOLE PROPRIETORSHIP
D.   BETA                                 R.    ORDINARY INCOME                             FF.    SYSTEMATIC RISK
E.   BOOT                                 S.    PASSIVE ACTIVITY                            GG.    TAX AVOIDANCE
F.   CAPITAL GAINS                        T.    PASSIVE INCOME                              HH.    TAX BASIS
G.   CAPM                                 U.    PROGRESSIVE TAX                             II.    TAX CONVERSION
H.   DEPRECIATION                         V.    PROPERTY TAX                                JJ.    TAX DEFERRAL
I.   DISCOUNT RATE                        W.    REGRESSIVE TAX                              KK.    TAX EVASION
J.   DIVERSIFICATION                      X.    REHABILITATION TAX CR.                      LL.    TAX-DEFERRED EXCHANGE
K.   ECONOMIC LOCATION                    Y.    REIT                                        MM.    UNANTICIPATED INFLATION
L.   EFFICIENT FRONTIER                   Z.    REMIC                                       NN.    UNSYSTEMATIC RISK
M.   GENERAL PARTNERSHIP                  AA.   RISK-AVERSE INVESTOR                        OO.    WASTING ASSETS
N.   INFLATION HEDGE                      BB.   S CORPORATION                               PP.    ZERO COUPON BONDS

Match the appropriate terms above to each statement below by indicating the LETTER of the term on the blank. (1 pt. each)

____ 1. Assets that gradually lose value over a period of time to use, wear and tear, or the action of the elements.

____ 2. Tax or duty based on value and levied as a percentage of that value.

____ 3. A risk that is unique to an investment; therefore, in can be eliminated through diversification.

____ 4. As used in finance literature, a symbol for the measure of systematic risk.

____ 5. Non-like kind property (which is taxable) involved in an otherwise tax-free exchange

____ 6. A swap of investment that permits the investor to defer tax payment on any application in value of the property exchanged.

____ 7. A financial theory that the expected return of an asset is linearly related to a risk-free rate plus a risk premium based
        on the nondiversifiable risk of the asset.

____ 8. The willful concealment or misrepresentation of facts in order to avoid the payment of tax.

____ 9. A form of tax avoidance that enables the taxpayer to convert ordinary income to more favorably taxed capital gain.

____ 10. Reduction of risk by investing in many different types of projects.

____ 11. A business operated by an individual.

____ 12. Transaction where the owner sells a property then leases it from the new owner.

____ 13. An ownership entity which holds a fixed pool of mortgages and issues multiple classes of interests in itself to investors.

____ 14. Prices increasing at the rate of inflation. As a result, there is no decrease in real wealth.

____ 15. Sale of property in which the purchase price (in whole or in part) is paid in partial payments to the seller.

____ 16. A direct reduction of an investor’s tax liability for modernizing existing buildings

____ 17. A form of ownership that restricts the personal liability of the limited partners to the amount of their investment.

____ 18. Compensation, profits, dividends and all other income other than capital gain.

____ 19. A tax, such as the federal income tax, whose rate increases in a series of steps as taxable income rises.

____ 20. One of three categories of taxable income under the 1986 tax reform (e.g., rent income).
FINANCE 4500 - - Quiz 6.1

21. Your clients are considering the sale of one of their properties for $450,000 cash. Your clients purchased this property in 1984 for
$100,000. Since that time, depreciation of $80,000 has sheltered taxable income. The original mortgage was $80,000. Last month the
property was refinanced with a new $110,000 mortgage, at which time the $40,000 remaining on the original note was paid off. The
broker wants 10% commission. Your client’s capital gains tax rate will approximate 40% (due to recapture). What will be the net
cash proceeds after paying the broker, the bank, and the government? (4 pts)




22. Analyze the purchase and syndication of a $600,000 real estate investment with a 90% LTVR. Because of the high leverage, you
expect zero cash flows. You estimate the IRR of a ten year holding period to be 15%. Partner A’s required IRR is 14%, whereas
Partners’ B and C require 13%. Partition the investment project’s ten year equity IRR and estimate Partner D’s residual IRR. (8 pts)

Partner                       Initial Equity                     IRRs                                 Final Payouts

 A                            $35,000                            ___________                          ____________________

 B                            $16,000                            ___________                          ____________________

 C                            $8,000                             ___________                          ____________________

 D                            $1,000                             ___________                          ____________________

Totals                        $60,000                                                                 ____________________



23. Firstenberg, Ross and Zisler demonstrated the shift in an efficient frontier when real estate is added to a traditional 3-asset
portfolio. Answer each question below by indicating the appropriate LETTER which represents an answer from the list. (8pts)


                                               (E)
                                                     •          Curve 2
                                                                                                          ANSWERS
                                                                                                a. Risk
                                                                                                b. Return
          0.17
                        (B)
                                 •                   •   (D)
                                                                      Curve 1                   c. Risk Premium
                                                                                                d. Inflation Premium
                                                                                                e. 3 Asset Portfolio
         0.10
                                 •   (A)
                                                     •   (C)
                                                                                                f. 4 Asset Portfolio
                                                                                                g. Inefficient Portfolio
                                                                                                h. T-Bill Yield Curve
                                                                                                i. BBB Yield Curve
                                                                                                j. Exception Rule
                                1.0                2.0
                                                                                                k. Less return for same risk
                                                                                                l. More risk for same return
                                                                                                m. More return for same risk
            (1) What is on the horizontal axis?                  _______                        n. Less risk for same return

            (2) What does “Curve 2” represent?                   _______

            (3) What is a shift from (E) to (D)?                 _______

            (4) What is a shift from (B) to (D)?                 _______

				
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