Sample Exam Real Estate Finance, K S Tse, HKU 1.

Chak-Piu Ltd, a local real estate developer, is selling uncompleted flats with occupationpermit date 6 months from today. All units are equally priced at $3 million. Chak-Piu only offers one financing plan as follows: The purchaser will deposit x% of the price today and pays the rest at the end of the 9th month. If you buy with a lump-sum, the discount off the price is 10%. The market interest rate is 16.8% per year compounded monthly. The initial deposit x% is nearest: a) 12.53% b) 13.33% c) 13.73% 2. d) 14.23% e) 14.98%

A real estate developer has 200 uncompleted flats to be completed at the end of 9 months. The current market conditions allow the developer to comfortably sell each unit at $5.5 million. The developer expects that the price variance is 0.6. The developers risk aversion factor is 0.02. If the developer sells 130 units today, the expected future price is nearest: b) $5.56m c) $5.71m d) $5.92m e) $6.34m

a) $5.24m

3. Cheuk-Yin owns a 50-year old building which is currently vacant and considers renovating the building to a comparable property which produces an annual rental income of $360,000. The renovation cost is estimated at $1.5 million. The annual rental income is expected to grow at a constant 5% per year for the indefinite future. The appropriate discount rate for the NOI after renovation is 16%. If Cheuk-Yin renovates immediately, the value of the old building is nearest: a) $1.576 million b) $1.773 million million 4. c) $1.824 million d) $2.045 million e) $2.217

Which of the following statements regarding the return on real estate investment is/are false? I) Real estate return is equal to property yield. II) Real estate return includes rate of change of price. III) Property yield cannot be negative.

a) I only. b) II only. c) III only. d) I and III only.

e) I, II, and III.

Sample 2, Tse

5. Which of the following statements regarding collateralized mortgage obligations (CMOs) is/are correct? I) II) CMOs III) to be profitable to the originator. The institutions in that issued CMOs in Hong Kong in 1994 are Bank of America, Citicorp, Cheung Kong Securities, Standard & Chartered Bank, and Hong Kong Shanghai Bank. The market for CMOs consists of investors with different investment needs. Mispricing of long-term mortgage securities by the investors is necessary for

a) I only. b) II only. c) III only. d) I and II only. e) I, II, and III.

The following information pertains to next FOUR questions. Consider the following Collateralized Mortgage Obligations with three classes of bonds, Tranche A, Tranche B, and Tranche Z. Assets 4-year, 12% fixed rate Mortgages = $1,500,000 Tranche Stated maturity Coupon Rate Amount Issued A 2 years 9% $400,000 B 3 years 10% $400,000 Z 4 years 13 % $400,000 All cash flows are annual. 6. The total payment to Tranche A at the end of year 1 is nearest: a) $321,852 b) $341,852 c) $361,852 d) $381,852 e) $401,852 7. The total payment to Tranche B at the end of year 2 is nearest: a) $416,126 b) $422,126 c) $432,126 d) $442,126 e) $452,126

8. The total payment to Tranche Z at the end of year 3 is nearest: a) $376,220 b) $396,220 c) $416,220 d) $436,220 e) $456,220

9. The residual cash flow to equity at the end of year 4 is nearest: a) $314,591 b) $334,591 c) $354,591 d) $374,591 e) $394,591

Sample 3, Tse

The following information pertains to next FOUR questions. Suppose a $10,000 of 10% fixed rate mortgages have been pooled as security for an issue of 10 pass-through securities. The mortgages have 3 years to maturity. The pass-through will carry a pass-through rate of 9% and a servicing fee of 1%. Consider the following prepayment assumptions for the pass-through: Pass-through A No prepayment throughout the entire term of the mortgages. Pass-through B 50% of the outstanding pool balance is expected to be prepaid at the end of year 2.

10. If the market interest rate for the pass-through is 5%, the market value of each passthrough A is nearest: a) $1056 b) $1066 c) $1076 d) $1086 e) $1096

11. If the market interest rate for the pass-through remains at 5%, the market value of passthrough B is nearest: a) $1064 b) $1074 c) $1084 d) $1094 e) $1104

12. If the market interest rate increases to 15%, then the difference in price between B and A is nearest: a) 11.77 b) 12.77 c) 13.77 d) 14.77 e) 15.77

13. Which of the following conditions are not necessary for collateralized mortgage obligations (CMOs) to function properly? I) II) CMOs III) a) I only. to be profitable to the originator. CMOs do not require overcollaterization. b) II only. c) III only. d) I and II. e) I and III. All investors in the CMO market must have the same investment need. Mispricing of long-term mortgage securities by the investors is necessary for

14. Which of the following statements regarding the return on real estate investment is/are true? I) Real estate return is equal to property yield. II) Real estate return includes rate of change of price. III) Property yield cannot be negative. a) I only. b) II only. c) III only. d) I and II. e) II and III.

Sample 4, Tse

15.

The pass-through rate is the coupon rate of interest promised by the issuer of a passthrough security to the investor. Which of the following statements about the passthrough rate is false? The pass-through rate is: I) equal to the average rate of interest on all mortgages in the underlying pool. II) lower than the lowest rate of interest on any mortgage in the underlying pool. III) higher than the highest rate of interest on any mortgage in the underlying pool of mortgages.

(a) I only

(b) II only

(c) III only

(d) I and III only.

(e) I, II, and III.

16.

Which of the following statements regarding mortgage-backed bonds is generally false? I) The total value of the MBBs issued must be greater than or equal to the market value of the assets underlying the mortgage pool. II) Unlike corporate bonds, MBBs are usually issued with variable coupon rates of interest. III) Overcollateralization of the mortgage pool is needed to the extent that the income from mortgages will be sufficient to pay interest on the bonds.

(a) I only

(b) II only

(c) III only

(d) I and III only

(e) I, II, and III.

17. Which of the following statements concerning mortgage-backed securites is false? I. In the case of mortgage-backed bonds, the issuer and the investors share the prepayment risk. II. In the case of mortgage pay-through bonds, the issuer bears most of the prepayment risk. III. Prepayment risk does not affect the investors in mortgage pass-throughs. (a) I only.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. E E B A D E A D B C A C E E D E E

(b)

II only.

(c)

III only.

(d)

I and II only.

(e)

I, II, and III.