FIN 471- Suppose you take an FRM of $150,000 at 7.5% for 30 years.

1. Suppose you take an FRM of $150,000 at 7.5% for 30 years. What is the breakdown of interest and principal for the payment in month 240?

a. $1048.82 interest, $0 principal

b. $0 interest, $1,048.82 principal

c. $493.50 interest, $555.32 principal

d. $555.32 interest, $493.50 principal

e. cannot be determined

2. Suppose you take an FRM of $150,000 at 7.5% for 30 years. If you repay the mortgage at the end of year five, what is the outstanding balance?

a. $52,342

b. $87,017

c. $141,576

d. $141,926

e. none of the above

3. A lender offers you a fixed-rate mortgage for $145,000 at 6% for 30 years, monthly payments, with 2.625 discount points. What is the effective borrowing cost of this loan?

a. 6.17%

b. 9.75%

c. 6.25%

d. 8.625%

e. none of the above

4. A lender offers you a fixed-rate mortgage for $145,000 at 6.25% for 30 years, monthly payments, with 0.75 discount points. If you repay the loan balance at the end of year four, what is the effective cost of the loan?

a. 6.32%

b. 6.47%

c. 7.00%

d. 6.35%

Blake and Gwen have secured a 30 year, $800,000 (FRM) loan at 7%. Fifteen years later, theborrowershave the opportunity to refinance with a fifteen year mortgage at 6%. However, the up front fees, which will be paid in cash, are $12,500. Should the borrowers refinance?

5. Pmt based on old loan

A. $5322

B. $4332

C. $2332

D. $332

6. Balance after 15 years

A. $592150

B. $92150

C. $2150

D. $150

7. PV of Savings from refinancing

A. $8,574

B. $38,526

C. $28,574

D. $18,574

8. Decision should you refinance or not?

A. Yes Refinance because saving > cost

B. No Refinance because savings < cost

C. Indifferent because savings = cost

D. Do not have sufficient info to answer

Answer question 9-12 based on the info below

Justin Moore is considering the purchase of an apartment complex. The following assumptions are made:

• The purchase price is $1,000,000.

• Potential gross income (PGI) for the first year of operations is projected to be $ 171,000.

• PGI is expected to increase at 4 percent per year.

• No vacancies are expected.

• Operating expenses are estimated at 35 percent of effective gross income. Ignore capital expenditures.

• The market value of the investment is expected to increase 4 percent per year.

• Selling expenses will be 4 percent.

• The holding period is 4 years.

• The appropriate unlevered rate of return to discount projected NOIs and the projected NSP is 12 percent.

Justin comes to you for financial advice.

9. Calculate NOI for year 4.

A. $125,029

B. $225,029

C. $325,029

D. $425,029

10. Calculate the SP in year 4.

A. $1,169,859

B. $2,169,859

C. $3,169,859

D. $2,169,859

11. Calculate NSP (Net selling price).

A. $1,123,065

B. $123,065

C. $2,123,065

D. $9,123,065

12. Calculate the (unlevered) net present value of this investment, assuming no mortgage debt.

A. 70,150

B. 150

C. -70,150

D. 770,150

13. Calculate your IRR.

A. 14.22 percent

B. 0.22 percent

C. -14.22 percent

D. 19.22 percent

14. Given the following information, what is the potential gross income?

Property: 4 office units

Contract Rents per unit: $2500 per month

Vacancy and collection losses: 15%

Operating expenses: 35%

CAPEX: 10%

A) $100,000

B) $135,000

C) $102,000

D) $120,000

15. Data for five comparable income properties that sold recently are shown below:

Property	NOI	Sale Price
A	$ 57,800	$ 566,600
B	49,200	496,900
C	63,000	630,000
D	56,000	538,500
E	58,500	600,000

What is the indicated overall rate (R_O)?

a. 10.05

b. 11.05

c. 13.05

d. 14.05

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