Question 1

What is the monthly payment on an $80,000, 9% interest-only mortgage?

Accepted Answer

A)   $600.00.
B)   $811.41.
C)   $1005.78.
D)   $7200.00. A

Question 2

You want to take out a fully-amortizing 30-year mortgage. You can afford monthly payments of $600 each. The interest rate is 9%. How much money can you borrow?

Accepted Answer

A)   $6,667.
B)   $66,667.
C)   $74,569.
D)   $80,000. C

Question 3

What is the present value of a 10-year lease with monthly rental payments of $2000 due at the beginning of each month, if the opportunity cost of capital is 8%?

Accepted Answer

A)   $161,042.
B)   $164,843.
C)   $165,942.
D)   Insufficient information to answer the question. C

Question 4

Real estate is approximately what share of the total U.S. investable asset market universe:

Accepted Answer

A)   5%
B)   10%
C)   around a quarter
D)   75%

Question 5

You need to borrow $80,000 for a down-payment on a house. You would like to pay the loan off in 15 years. With 9% interest on the loan, what will be your monthly payment?

Accepted Answer

The answer of You need to borrow $80,000 for a...

Question 6

You buy a piece of land for $50,000. You think you will be able to sell it for three times this value in four years. Ignoring any net cash flow while you hold the land, what would be your return on this investment, stated in per annum terms with annual compounding?

Accepted Answer

The answer of You buy a piece of land for...

Question 7

Professional money managers have traditionally divided the investment universe into three major long-run investment "asset classes" plus "cash"). Which of the following is not one of these asset classes:

Accepted Answer

A)   Stocks
B)   Real Estate
C)   Bonds
D)   Mutual Funds

Question 8

On Dec.31 2006 you buy a property for $1,000,000. On Dec.31 2007 that property yields $100,000 of net cash flow which you take and spend on a New Year's Eve bash. Also on Dec.31 2007 the property is appraised at $1,010,000 in value, but you don't sell it then. On Dec.31 2008 the property yields another $100,000 in net cash flow which you spend on another bash, in part to celebrate the fact that you sold the property that very day for $1,200,000. There are no other cash flows from this investment.
A) What is the simple HPR total return on your investment in this property for the calendar year 2007?
B) What is the simple HPR total return on your investment in this property for the calendar year 2008?
C) What is the annual time-weighted arithmetic mean periodic total return for this property during the two-year period from the beginning of 2007 through the end of 2008?
D) What is the annual time-weighted geometric mean periodic total return for this property during the two-year period from the beginning of 2007 through the end of 2008?
E) What is the IRR per annum) on your investment in this property "cradle-to-grave" that is, over the entire 2-year period you held the property, from purchase to sale)?

Accepted Answer

The answer of On Dec.31 2006 you buy a property...

Question 9

Which statement is most accurate?

Accepted Answer

A)   Real Estate is a better inflation hedge than Treasury Bills.
B)   Stocks are a better inflation hedge than Real Estate.
C)   Long-Term Bonds are a better inflation hedge than real estate.
D)   Real estate is a better inflation hedge than stocks.

Question 10

All of the following are advantages of direct ownership of property as a way of investing in real estate except:

Accepted Answer

A)   Investor retains control over management
B)   There is often a "pride of ownership" factor
C)   There is still some tax shelter benefit through depreciation
D)   The investment is very "liquid"

Question 11

All are true, except:

Accepted Answer

A)   The "Risk Premium" is the total expected return minus the risk-free rate.
B)   "Risk" is the possibility the ex post return may differ from the ex ante expectation.
C)   "Risk" is measured by the standard deviation of the distribution of returns.
D)   Higher risk is associated with higher expected returns.

Question 12

All are ways to break up or add up to) the total return except:

Accepted Answer

A)   Income + Appreciation
B)   Yield + Capital Gain
C)   Riskfree Rate + Risk Premium
D)   Real Return + Inflation Premium
E)   Nominal Return + Real Return

Question 13

"Liquidity" refers to:

Accepted Answer

A)   Location of real estate investment on a river or seashore.
B)   Riskless cash investment such as Treasury Bills.
C)   Ability to trade asset shares in a bar or pub.
D)   Ability to sell without payment of capital gains taxes.
E)   Ability to sell an asset quickly at full value.

Question 14

The nominal income return was:

Accepted Answer

A)   0%
B)   5%
C)   10%
D)   115%

Question 15

The nominal appreciation return was:

Accepted Answer

A)   0%
B)   5%
C)   10%
D)   115%

Question 16

You expect annual cash flows from a certain property as follows: $\begin{array}{|c|c|}
\hline \text { Year 1 } & \$ 20,000 \
\hline \text { Year 2 } & \$ 22,000 \
\hline \text { Year } 3 & \$ 30,000 \
\hline \text { Year } 4 & \$ 31,000 \
\hline \text { Year } 5 & \$ 40,000 \
\hline
\end{array}$ In addition, you expect that you can sell the property at the end of the 5th year for 10 times its expected cash flow that year. If the opportunity cost of capital is 10% per year, then what is the net present value NPV) of a deal in which the investor has to pay $350,000 for the property at the end of Year 0, one year prior to the first cash flow)?

Accepted Answer

A)   -$19297.
B)   +$3,282.
C)   +$38,610.
D)   None of the above.

Question 17

The present value of the future sum of $30,000 two years from now, if the opportunity cost of capital is 15% nominal annual rate of return compounded monthly is:

Accepted Answer

The answer of The present value of the future sum...

Question 18

If yields are quoted at 9.00% in the bond market BEY), then what interest rate must you charge in a monthly-payment mortgage MEY) in order to be able to sell the mortgage at par value in the bond market?

Accepted Answer

The answer of If yields are quoted at 9.00% in...

Question 19

All of the following are examples of the "income objective" of investment except:

Accepted Answer

A)   A 65-year-old planning how to use his wealth to support himself now that he is retired.
B)   A pension fund trying to match revenues to its current pension payout needs.
C)   A university endowment fund wanting to use gift assets to fund an annual scholarship program.
D)   A 25-year-old planning to be able to buy a house in 5 years.
E)   A bank investing assets so as to be able to pay interest on current savings deposits.

Question 20

If you have a perpetuity from T=0 valued at PV=$1,000, and the same cash flow stream results in a perpetuity starting from T=3 valued at $500, how much is the annuity from T=0 until T=3 worth, assuming r=10%?

Accepted Answer

A)   $5,000
B)   $500
C)   $50
D)   Cannot be determined from given information

Exam 3: Central Place Theory and the System of Cities