1. For which of the following reasons would a business prefer to lease real estate rather than own it?

1. If the business does not require specialized or unique facilities
2. Leasing allows the business to benefit from depreciation allowances
3. Leasing provides diversification from core business
4. The capital commitments with leasing are generally lower than the capital commitments associated with owning

1. (I) and (IV) only
2. (II) and (III) only
3. (I), (II), and (III) only
4. (I), (II), (III), and (IV)

2. Despite the magnitude of their real estate holdings, many non-real estate corporations have historically expended little effort to manage these assets effectively. Recently, the development of which of the following markets has helped to quell concerns related to this issue?

1. Commercial mortgage backed securities (CMBS)
2. Real estate investment trusts (REITs)
3. Sale-leaseback
4. Tenancy-in-common (TIC)

3. There are a set of restrictive conditions that REITs must satisfy on an ongoing basis in order to maintain their special tax status. All of the following statements regarding the main restrictions are true EXCEPT:

1. At least 100 investors must own a REITs shares
2. No five investors can own more than 50 percent of a REITs shares
3. At least 75 percent of the value of a REITs assets must consist of real estate assets
4. A REITs must distribute at least 75% of its taxable income to shareholders in the form of dividends.

4. Since most real estate assets are depreciable, using accounting income to measure a REITs cash flow may actually understate the funds that are available to distribute to investors as dividends. Therefore, REITs utilize a measure that adds back depreciation and amortization expenses, more commonly referred to as:

1. Net income
2. Net asset value
3. Funds from operations
4. Effective gross income

1. Which of the following statements is FALSE?

1. The secondary mortgage market enables the issuer to sell existing mortgages and thereby replenish funds with which new loans can be originated.
2. When issuing mortgage-backed bonds, the issuer retains ownership of the underlying mortgage to the bondholders.
3. One major difference between mortgage securities and corporate bonds is that mortgage securities tend to be overcollateralized.
4. When the coupon rate of a MBB exceed market interest rates, the price of the bond will be greater than its par value.