Exam 12: Financial Leverage and Financing Alternatives

Under which conditions would one be MOST LIKELY to see an interest rate swap?

A loan in which the lender has an option to purchase an equity interest in a property is known as an):

One advantage of using leverage is that NOI increases with higher amounts of leverage.

Everything else equal, the loan balance on a negative amortization loan will be less than that on an interest-only loan after the first year.

A property is financed with an 85% loan-to-value ratio at 10% interest over 25 years. What would the BTIRRE on equity be estimated at given that the BTIRRP is 10.75%?

A lender requires a 1.20 debt coverage ratio as a minimum. If the net operating income of a property is $45,000, what annual amount of debt service would provide the required debt coverage ratio?

All other things being equal, which of the following best describes the effects of leverage on an investment's risk-return characteristics assuming the expected return is greater than the lending rate)?

A lender requires a 1.20 debt coverage ratio as a minimum. If the net operating income of a property is $60,000, what is the maximum amount of debt service the lender would allow?

Which of the following is FALSE regarding interest only loans?

When constructing a convertible mortgage, the lender will require a contract interest rate equal to or greater than the market rate on a similar mortgage without conversion option.

One advantage of a sale-leaseback is that the lease payments are 100 percent tax deductible.

A loan in which the lender receives part of the proceeds from the sale of the property is known as a convertible loan.

If a property has positive leverage, the owner should borrow as much as possible.

When the internal rate of return on an investment increases as the loan-to-value ratio increases, positive leverage exists.