Study document num 1 sept 08

Study document num 1 sept 08 - Part I: Multiple Choice (80%...

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Part I: Multiple Choice (80% of grade, 26 equal-weighted questions). Select the best alternative answer, based on what was taught in the course. Clearly indicate your selection by circling it. If it is not clear to the TA which your choice is, you will receive no credit. Read the question carefully before answering . 1. Which are the two fundamental markets in commercial real estate? (a) The space market and the asset market. (b) The space market and the money market. (c) The construction market and the land market. (d) The asset market and the stock market. 2. Total development costs (including sufficient profit for the developers) are $200/SF. Investors are willing to pay property prices of $10.00 per dollar of current rental income. What is the “replacement cost rent” in this market? (a) $20.00/SF. (b) $16.00/SF. (c) $12.50/SF. (d) $10.00/SF. 3. All of the following are major determinants of cap rates in the property asset market, except : (a) The opportunity cost of capital (as determined in the capital market). (b) The expected growth in property rents (as determined in the space market). (c) The risk perceived for the property (as determined in the space and capital market). (d) The equilibrium “replacement cost rent” (as determined in the space market). 4. The development industry is the most cyclical and volatile branch of the real estate business, because: (a) Developers are stupid. (b) Developers borrow too much money. (c) It is hard to predict how much a building’s construction will cost. (d) There is only need for new supply of space when the economy is growing or changing. 5. The “real estate system” consists of the following three major components: (a) The space market, the capital market, and the mortgage industry. (b) The space market, the asset market, and the development industry. (c) The public equity market, the private equity market, and the debt market. (d) The capital market, the government, and land. 6. Which of the following is an example of “negative feedback” in the real estate system? (a) Since the stock of built space cannot readily shrink, rents will fall when demand falls. (b) Lenders make money by issuing loans, so they tend to keep the capital flowing to developers even during down markets. (c) Real estate markets exhibit inertia, so market participants rationally extrapolate past rent trends into the future. (d) Growth in space usage demand stimulates increased rents or improved prospects for future rents, which increases the present value of real estate assets, which improves the profitability of new development projects. 1
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18. The expected return on an investment in a property is inversely related to the price you pay for the property fundamentally because : (a) The future cash flows the property can generate are independent the price you pay for the property today. (b) The return must include a risk premium.
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This note was uploaded on 10/03/2011 for the course REE 4303 taught by Professor Weaver,w during the Spring '08 term at University of Central Florida.

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Study document num 1 sept 08 - Part I: Multiple Choice (80%...

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