Design Ops I Practice Exam

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					Practice Exam
As with the Chapter Review Tests and the Final Exam, the Practice Exam tests your
understanding of the materials underlying the learning objectives. After you’ve reviewed your
answers to the Chapter Review Tests, try your hand at this 50-question Practice Exam to become
still more comfortable with taking a multiple-choice test. Remember, topics covered in this exam
may likewise be covered in the Final Exam, but the wording of the questions will never be
Real Estate Investment & Finance (Canadian version)                              Practice Exam

1.   Flexibility in leasing to maximize returns is best concentrated in actions such as:
     a.     negotiating percentage rents.
     b.     replacing management staff.
     c.     staggering lease terms.
     d.     installing demountable partitions.

2.   A speculator is interested in flipping a house. He wants to purchase a $350,000 home by
     putting up 10% of the cash for the home and securing a 6% loan for the rest. He expects a
     12% return. What is the blended capitalization rate?
     a.     4.2%
     b.     5.4%
     c.     6.6%
     d.     7.8%

3.   Under an agreement for sale (also known as an instalment purchase contract), the seller
     transfers the title to the buyer:
     a.     when the instalment period ends but before the buyer pays the balance due.
     b.     after the buyer has paid at least half of the instalments.
     c.     when the instalment period ends and the buyer pays the balance due.
     d.     at the beginning of the instalment period once the buyer signs the contract.

4.   An example of functional obsolescence is:
     a.     lack of rapid transit.
     b.     overassessed property value.
     c.     outdated lighting fixtures.
     d.     change in population or employment.

5.   The rent that is considered the current market rental rate is called:
     a.     contract rent.
     b.     percentage rent.
     c.     economic rent.
     d.     additional rent.
Real Estate Investment & Finance (Canadian version)                            Practice Exam

6.    The land description method that measures distance and direction from an established
      reference point is the:
      a.     township lot and concession.
      b.     metes and bounds system.
      c.     rectangular survey system.
      d.     lots and blocks system.

7.    What is the approximate future value of $15,000 at 9% for 11 years?
      a.     $28,370
      b.     $38,370
      c.     $38,706
      d.     $40,706

8.    With regard to taxation, the basis of an asset is the:
      a.     market value.
      b.     cost of improvements.
      c.     purchase price.
      d.     depreciable amount.

9.    The annual debt service on a 20-year loan is $37,240. The principal amount is
      $1,000,000. What is the loan constant?
      a.     0.0372
      b.     0.1046
      c.     0.1685
      d.     0.2109

10.   Money left to compound at 5% interest will require approximately how long to double in
      a.     12 years
      b.     13 years
      c.     14 years
      d.     16 years
Real Estate Investment & Finance (Canadian version)                                 Practice Exam

11.   ABC company purchases inexpensive land and builds its factory on that land. It
      anticipates a rate of growth that will require it to move to a newer and larger location
      within approximately 50 years. It expects to sell the present land and building for a profit
      at that time. What kind of ROI does this represent?
      a.     compound ROI
      b.     capital ROI
      c.     investment ROI
      d.     aggregate ROI

12.   Project risk can be evaluated most accurately through the use of:
      a.     professional consultant reports.
      b.     interviews with prospective contractors.
      c.     analytically generated capitalization rates.
      d.     comparisons with similar projects.

13.   In a mortgage loan transaction, the mortgagor is the:
      a.     seller.
      b.     lender.
      c.     borrower.
      d.     intermediary.

14.   (Fill in the blank) In the five Cs of credit, the fundamental financial strength of a
      borrower is __.
      a.     capital
      b.     capacity
      c.     character
      d.     conditions

15.   A debt service ratio of 1:21 indicates that income to make debt service payments is:
      a.     ample.
      b.     insufficient.
      c.     exactly enough.
      d.     sufficient if unexpected expenses are few.
Real Estate Investment & Finance (Canadian version)                                Practice Exam

16.   The type of partnership with two classes of partners with unequal interests is a(n):
      a.     general partnership.
      b.     equity trust.
      c.     joint venture.
      d.     limited partnership.

17.   Which is true concerning corporations?
      a.     corporate profits are taxed at the federal and provincial levels
      b.     continuity of the firm is not assured when the shares of the firm are resold
      c.     the financial liability of individual shareholders is not limited to the purchase
             price of the stock
      d.     Revenue Canada allows corporations to accumulate “excess” capital without

18.   The form of ownership that protects assets from being seized by creditors for payment of
      debts is called a:
      a.     trust.
      b.     syndication.
      c.     subchapter S corporation.
      d.     general partnership.

19.   Based on the information below, what is the internal rate of return on this investment?
             Initial investment:                  $375,000
             Expected rate of return:                14.5%
             Annual cash flows: Year 1             $40,000
                                Year 2             $47,000
                                Year 3             $50,000
                                Year 4             $46,000
                                Year 5             $49,000
                                Year 6             $58,000
                                Year 7             $55,000
                                Year 8             $51,000
                                Year 9             $53,000
                                Year 10           $415,000
      a.     10.45%
      b.     11.25%
      c.     12.85%
      d.     14.75%
Real Estate Investment & Finance (Canadian version)                              Practice Exam

20.   The best way for a property manager to make decisions is to:
      a.     minimize risk by making rational decisions.
      b.     eliminate risk by postponing decisions.
      c.     take risks as a way to maximize profit.
      d.     minimize risk by following popular opinions.

21.   The actual rate of return of a series of cash flows generated by an investment is known
      a.     loan amortization.
      b.     net present value.
      c.     internal rate of return.
      d.     interest rate.

22.   Site management costs are charged back as part of the:
      a.     operating costs.
      b.     basic rental cost.
      c.     ongoing services.
      d.     ancillary services.

23.   Which logic system is used in most handheld calculators?
      a.     reverse Polish notation
      b.     chaining
      c.     algebraic
      d.     rational

24.   Based on the information below, which represents the first year’s principal portion of the
             Amount of loan:            $432,000
             Annual interest rate:      9.33% per annum
             Amortization term:         13 years
      a.     $16,548.86
      b.     $17,364.37
      c.     $18,152.42
      d.     $18,543.00
Real Estate Investment & Finance (Canadian version)                                   Practice Exam

25.   If the net present value of the future cash flows from an investment results in a negative
      amount, then the:
      a.      expected rate of return has not been achieved.
      b.      investment should be made.
      c.      internal rate of return is greater than the expected rate of return.
      d.      expected rate of return is too low.

26.   The type of lease commonly used for unique single-tenant buildings is the:
      a.      net lease.
      b.      double-net lease.
      c.      triple-net lease.
      d.      gross lease.

27.   The final step in the life cycle costing calculation for a project is to divide the total
      expenses by the:
      a.      escalation rate.
      b.      single present worth factor.
      c.      life expectancy.
      d.      total savings.

28.   When the equity contribution to a project is small relative to the level of financing, the
      a.      is an accurate way to measure performance.
      b.      is the best way to measure performance.
      c.      becomes disproportionately large.
      d.      becomes disproportionately small.

29.   What gives a business its competitive advantage?
      a.      ability to duplicate
      b.      being the largest
      c.      core competencies
      d.      diversification

30.   The best use of a satisfied tenant with a steady rental payment record is as a(n):
      a.      chance to reduce courtesy services.
      b.      income source through unscheduled rent increases.
      c.      chance to reduce annual maintenance.
      d.      referral source for prospective tenants.
Real Estate Investment & Finance (Canadian version)                            Practice Exam

31.   For management decisions, risk can be distinguished from uncertainty by the:
      a.     number of variables.
      b.     rationality of alternatives.
      c.     amount of money involved.
      d.     estimation of probabilities.

32.   An example of a special-use property is a(n):
      a.     hotel.
      b.     freestanding retail store.
      c.     shopping center.
      d.     apartment building.

33.   A group of investors makes a down payment of 25% on an income-producing property,
      expecting a return of 12%. The remaining funds are borrowed for a 15-year term at 11%.
      The loan constant is 0.142555. What is the mortgage equity rate?
      a.     11.6%
      b.     12.1%
      c.     13.7%
      d.     15.3%

34.   The lender participates in any value increase of the property in a(n):
      a.     graduated payment mortgage.
      b.     shared appreciation mortgage.
      c.     purchase money mortgage.
      d.     all-inclusive mortgage.

35.   Given a property purchase price of $4,000,000 and an NOI of $380,000, what is the
      indicated capitalization rate?
      a.     8.5%
      b.     9.0%
      c.     9.5%
      d.     10.5%
Real Estate Investment & Finance (Canadian version)                                 Practice Exam

36.   (Fill in the blank) Highest and best use is the __ opinion of how the property may be used
      to create the highest value.
      a.     appraiser’s
      b.     owner’s
      c.     potential owner’s
      d.     lessee’s

37.   Based on the information below, which represents the first year's interest portion of the
      monthly payments?
             Amount of loan:             $432,000
             Annual interest rate:       9.33% per annum
             Amortization term:          13 years
      a.     $37,891.28
      b.     $38,794.75
      c.     $40,050.00
      d.     $41,295.64

38.   Which statement is true concerning calculations in life cycle costing?
      a.     the escalation rate is added to the inflation rate
      b.     savings are expressed as negative numbers
      c.     expense or savings are divided by the UPW (uniform present worth)
      d.     the real interest rate is determined from a table

39.   Physical factors that function as financial variables in a property’s feasibility include all
      of the following except:
      a.     legal/regulatory factors.
      b.     tenant space factors.
      c.     tenant organizational characteristics.
      d.     landscaping factors.

40.   To be legally enforceable, a contract to purchase real estate must:
      a.     be in writing.
      b.     involve unrelated parties.
      c.     detail any financing.
      d.     include insurance requirements.
Real Estate Investment & Finance (Canadian version)                             Practice Exam

41.   The lease that tends to be long-term (20 years or more) is the:
      a.     ground lease.
      b.     net lease.
      c.     gross lease.
      d.     percentage lease.

42.   What is the present value of $1,500,000 discounted at 12% for 11 years?
      a.     $418,761
      b.     $421,214
      c.     $428,761
      d.     $431,214

43.   An example of a fixed expense is:
      a.     cleaning.
      b.     repairs.
      c.     administration.
      d.     insurance.

44.   The seller under a contract for deed is called the:
      a.     mortgagee.
      b.     beneficiary.
      c.     vendor.
      d.     vendee.

45.   What is the adjusted basis for an investment property based on the following conditions?
             Purchase price:                     $75,000
             Improvements:                       $125,000
             Accumulated depreciation:           $55,000
             Sales price:                        $325,000
      a.     $132,500
      b.     $145,000
      c.     $157,500
      d.     $195,000
Real Estate Investment & Finance (Canadian version)                                Practice Exam

46.   (Fill in the blanks) The Bank of Canada’s sale of securities tends to __ the money supply
      and thereby __ interest rates.
      a.     increase; increase
      b.     increase; decrease
      c.     decrease; increase
      d.     decrease; decrease

47.   During which phase of the property life cycle is a building most likely to operate at
      maximum efficiency?
      a.     development
      b.     routine administration
      c.     modernization
      d.     demolition

48.   When people purchase a commodity for reasons beyond the satisfaction of physical needs
      such as food, shelter, and work space, this situation exemplifies the principle of:
      a.     scarcity.
      b.     utility.
      c.     purchasing power.
      d.     desire.

49.   A lender’s obligation to release a mortgage upon full payment is contained in the:
      a.     payment clause.
      b.     binding clause.
      c.     protection of the borrower clause.
      d.     defeasance clause.

50.   Developing a project capitalization rate starts with an evaluation of the:
      a.     weighted average cost of capital.
      b.     expected rate of return.
      c.     present value of the investment.
      d.     property’s current operations.
Practice Exam Answers

 1.    C                26.   C
 2.    C                27.   C
 3.    C                28.   C
 4.    C                29.   C
 5.    C                30.   D
 6.    B                31.   D
 7.    C                32.   A
 8.    C                33.   C
 9.    A                34.   B
 10.   C                35.   C
 11.   B                36.   A
 12.   C                37.   B
 13.   C                38.   B
 14.   A                39.   D
 15.   A                40.   A
 16.   D                41.   A
 17.   A                42.   D
 18.   A                43.   D
 19.   C                44.   C
 20.   A                45.   B
 21.   C                46.   C
 22.   A                47.   B
 23.   C                48.   D
 24.   C                49.   D
 25.   A                50.   A