RE 165 Real Estate Economics
Due 5/17/2012
Quiz for Chapter 16: SUMMARY OF REAL ESTATE INVESTMENT PRINCIPLES
1. The ability to convert an asset to cash quickly and
inexpensively is called:
A. management
B. risk
C. yield
D. liquidity
2. The risk of loss because of an increase in inflation is:
A. financial risk
B. interest rate risk
C. purchasing power risk
D. social change risk
3. The decline in real estate values caused by a
population shift from urban centers to the suburbs is an
example of which risk?
A. purchase power risk
B. legal change risk
C. social change risk
D. financial risk
4. The maximum amount of rent assuming 100 percent
occupancy is:
A. gross scheduled income
B. gross operating income
C. gross rent multiplier
D. gross domestic income
5. A contract in which the tenant agrees to pay all the
operating expenses is a:
A. gross lease
B. net lease
C. percentage lease
D. residual lease
6. Which of the following is not considered a real estate
operating expense?
A. maintenance
B. utilities
C. management
D. loan payments
7. In cash flow analysis, depreciation is:
A. called cost recovery
B. a noncash deduction
C. an income tax concept
D. all of the above
8. Before-tax cash flow is computed when:
A. operating expenses are subtracted from gross
operating income
B. annual debt service is subtracted from net operating
income
C. taxes saved or paid are subtracted from net
operating income
D. vacancies are subtracted from gross scheduled
income
9. According to the cash flow formula, a useable tax loss
times a marginal tax bracket equals taxes saved.
A. true
B. false
10. Taxes saved or paid, plus before-tax cash flow,
equals:
A. net spendable income
B. net rate of return
C. net sale proceeds
D. net operating income
11. Before-tax cash flow is $10,000, useable tax loss is
<$5,000>, and the marginal tax bracket is 30 percent;
therefore, the after-tax cash flow is:
A. $ 1,500
B. $ 4,500
C. $11,500
D. $15,000
12. Resale price, less outstanding loan balances, less
seller closing costs, less capital gain taxes, equals:
A. net spendable income
B. net rate of return
C. net sale proceeds
D. net operating income
13. (Asking Price ÷ Net Operating Income) = Gross Rent
Multiplier
A. true
B. false
14. All things being equal, the higher the subject
property’s gross rent multiplier (GRM) above the
market multiplier, the better the buy.
A. true
B. false
RE 165 Real Estate Economics
Quiz for Chapter 16: SUMMARY OF REAL ESTATE INVESTMENT PRINCIPLES
15. Comparable Property 1 sold for $500,000, with a
gross scheduled income of $62,500. Comparable
Property 2 sold for $450,000, with a gross scheduled
income of $56,250. The subject property’s gross
scheduled income is $57,100. Based only on this
information, the estimated market price of the subject
property is:
A. $456,800
B. $420,500
C. $357,200
D. $318,750
16. The gross rent multiplier approach is most often
used to estimate the probable resale price of:
A. single-family homes
B. apartment properties
C. commercial properties
D. industrial properties
17. Net Operating Income ÷ Price = Capitalization Rate
A. true
B. false
18. All things being equal, the higher the subject
property’s capitalization rate over the prevailing market
capitalization rate, the worse the buy.
A. true
B. false
19. The discount rate that reduces the future cash flows
to a present value just equal to the amount of money
invested is called the:
A. cash on cash rate of return
B. equity cap rate
C. internal rate of return
D. accounting rate of return
Due 5/17/2012