PE03 - AREI Past Exam - WS 2324 _ Only multiple Choice

1. Which of the following statements is incorrect? (4 credits)

a) Rents and cash flows increase in the Recovery phase.

b) In the Expansion phase, rents rise.

c) In the Expansion phase, yields fall.

d) The time it takes for a property to sell after being listed for sale slightly increases in the

Hyper Supply phase.

e) Decreased vacancies of rental properties are a characteristic of the Recession phase.

e) Decreased vacancies of rental properties are a characteristic of the Recession phase.

In the Recession phase, vacancies increase, not decrease. This is a clear marker of oversupply and lower demand .

4-Quadrant Model by DiPasquale and Wheaton

Which of the following statements is correct? (4 credits)

a) A higher cap rate leads to a decrease in prices and a decrease in the equilibrium rent.

b) A higher cap rate leads to an increase in construction and an increase in the equilibrium stock of space.

c) A higher demand in the space market leads to a price increase in the property market and a decrease in the equilibrium stock of space.

d) A higher demand in the space market leads to an increase of rent and a decrease of construction.

e) None of the above statements is correct.

e) None of the above statements is correct.

• (a): Higher cap rate → lower property prices, but it does not directly reduce equilibrium rent.

• (b): Higher cap rates decrease asset prices, reducing construction incentives.

• (c): Demand ↑ → Rent ↑ → Price ↑ → Construction ↑ → stock increases, not decreases.

• (d): Demand ↑ → Rent ↑ → Construction ↑ (not decrease) → Stock ↑.

Which of the following statements is correct? (4 credits)

a) REITs are Equity Assets that are traded on Private Markets.

b) Real Properties are Equity Assets that are traded on Public Markets.

c) Mortgage Backed Securities (MBS) are Debt Assets that are traded on Public Markets.

d) Mortgages are Debt Assets that are traded on Public Markets.

e) None of the above statements is correct.

c) Mortgage Backed Securities (MBS) are Debt Assets that are traded on Public Markets.

• MBS are Debt Assets, and they are traded publicly.

• REITs are equity assets and traded on public markets, so (a) is wrong.

• Real Properties are not traded on public markets directly.

• Mortgages are private debt contracts, not publicly traded, unless securitized.

Which of the following statements is incorrect? (4 credits)

a) Six different individuals can own 70% of a REIT together.

b) A company deriving 80% of its income from the dividends of other REITs would pass the Asset Test.

c) REITs are exempt from corporate income tax and must pay out 90% of their earnings in dividends.

d) REITs can be used to shield non-real estate income from corporation taxation.

e) REITs can have more than 100 shareholders.

d) REITs can be used to shield non-real estate income from corporation taxation.

REITs must derive income from real estate sources; they cannot shield non-real estate income from taxation. That would violate REIT tax rules and disqualify them .

Which of the following statements is correct? (4 credits)

a) A joint venture is formed by at least three parties with the intent of achieving a specific investment objective.

b) The manager provides the majority of the capital.

c) The investor’s personal liability is usually not limited as he gives personal recourse guarantees to the lender.

d) When considering the structure of a Joint Venture, potential investors usually consider initial capital contributions, the control of the project and sharing profits.

e) Participation in a Joint Venture is only possible for corporations.

d) When considering the structure of a Joint Venture, potential investors usually consider initial capital contributions, the control of the project and sharing profits.

d) lists all the standard JV structuring considerations.

• JVs can have 2 parties, not minimum 3.

• The manager rarely provides most capital.

• Liability is often limited.

• Individuals can form JVs, not just corporations.

Which of the following statements is correct? (4 credits)

a) A variable-rate mortgage has a constant rate over the entire period.

b) The rate of a variable-rate mortgage equals to a base rate plus a variable margin.

c) When agreeing on an interest-only loan, the borrower does not have to repay the loan principal at all.

d) The borrower of a partially amortizing loan has to repay the remaining proportion of the loan principal at maturity.

e) The loan principal of a fully amortizing loan has to be repaid at the beginning of the term.

d) The borrower of a partially amortizing loan has to repay the remaining proportion of the loan principal at maturity

• Partially amortizing loans require a balloon payment at maturity.

• (a) and (e) are false by definition.

• (b) is almost right but reversed: margin is fixed, base rate is variable.

• (c) is wrong — principal is repaid at maturity.

Which of the following statements is correct? (4 credits)

a) A mortgage-backed security is secured by the reputation of the borrower.

b) Different tranches of the securities have different return profiles but the same risk profile.

c) The interest and principal payment from the borrower pass through to the security holder.

d) The first loss is associated with the lowest risk and the highest expected yield.

e) Commercial mortgage-backed securities are backed by a pool of commercial mortgages and residential mortgages.

c) The interest and principal payment from the borrower pass through to the security holder.

• MBS function via pass-through structures: interest and principal go to the security holders.

• (a) is wrong: MBS is secured by mortgages, not borrower reputation.

• (b): risk profiles differ across tranches.

• (d): first-loss has highest risk, not lowest.

• (e): CMBS are only backed by commercial mortgages, not residential.