Part II: True/False (2% each)

1. T F Negative amortization reduces the principal balance of the loan.

2. T F ARMs help lenders limit or eliminate interest rate risk.

3. T F The default risk of a fixed rate mortgage is higher than the default risk of an ARM.

4. T F The term percentage rent refers to rent paid by the tenant as a percentage of the space leased to reimburse the landlord for increases in operating expenses.

5. T F A gross lease is one in which tenants pay all expenses.

6. T F In office leasing, the difference between usable space and rentable space is the loss factor.

7. T F The use of a CPI index in a lease shifts inflation risk to the tenant.

8. T F An advantage to a lender of an Adjustable Rate Mortgage is that it is always close to par value.

9. T F One of the positive features of commercial real estate as an investment class is its liquidity.

10. T F Cycles in commercial real estate are generally deeper and longer that economic cycles.

Part III: Short answer (5% each)

1. What would be an example of an index used in Adjustable Rate Mortgages (ARMs)? ______________________________________________________________________

1. Most ARMs have rate caps and/or debt service caps. Whats the difference between a rate cap and a debt service cap? ________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

2. Very briefly (please), what is the role in the single-family sector of the GSEs? _____________________________________________________________________________

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3. Name three cash expenditures incurred by a property owner that are not included in a calculation of Net Operating Income (NOI).

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Part IV: Effective rent calculation (15%)

Using a discount rate of 8%, compute the effective rent (per square foot) of a ten-year net lease. The lease provides for a net rent of $12/sf in the first year, increasing by $1/sf each year thereafter. The lease contains a front-end six-month concession. In the sixth year of the lease, the landlord will paint the tenants space, equal in value to $3/sf. To assist you, you are being provided a grid:

Year	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Cash Flow

2% Bonus: Yield on 10-year treasury bonds as of close of business today within 3 basis points. Give your answer to two decimal places (example: 4.05%) _________________________.