Exam (elaborations)
REE 5205 Unit 6 Quiz FSU (1).
- Institution
- Chapter 5: Time Value Of Money
REE 5205 Unit 6 Quiz FSU (1).
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REE 5205 Unit 6 Quiz FSUA property is financed with a 75% loan at 11.5% over 25 years. The property produces an
ATIRR on total investment of 7.34% based on a tax rate of 31%. What can be said about the
leverage associated with the property? - ANS-Negative leverage exists
A property produces an 8.92% ATIRR on the total investment considering a tax rate of 28%.
What is the maximum interest rate that could be paid on debt without causing the leverage to be
negative? - ANS-12.39%
A loan in which the lender receives a percentage of the net operating income from the property
is known as a(n): - ANS-participation loan
A loan in which the lender has an option to purchase an equity interest in a property is known as
a(n): - ANS-convertible loan
Which of the following would NOT be considered an advantage that an investor might consider
under a sale-leaseback of land? - ANS-The land may appreciate over the holding period
Which of the following types of loan is also called a negative amortization loan? - ANS-Accrual
loan
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? - ANS-$37,500 or lower
If properly constructed and assuming everything but the structure of the interest payment is
equal, which of the following loans would typically have the highest first-year debt service? -
ANS-Conventional loan
A property is financed with an 85% loan-to-value ratio at 10% interest over 25 years. Estimate
the BTIRRE on equity given that the BTIRRP is 10.75%. - ANS-15.0%
Which of the following would typically NOT be used as a basis for a participation loan? -
ANS-The Level of Operating Expenses
The maximum interest rate that could be paid on a debt before the leverage becomes
unfavorable is referred to as the: - ANS-Break-even interest rate
Which of the following is FALSE concerning an Interest-Only Loan? - ANS-It has greater
amortization than a comparable conventional loan
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