RES9776 Department of Real Estate

Real Estate Finance BaruchCollege

Spring 2011

RES 9776
Midterm (Practice) Exam 03/10/11

SESSION: 7:35 – 8:50 PM ______

  1. The exam is closed book and closed notes. You can bring in one page, single-sided, 811 formula sheet.
  1. You can (and probably have to) use a calculator.
  1. You have a total of 60 minutes for the exam.
  1. The whole exam has a total of 20 points. It will count 20% for your final course grade. There are total of 10 multiple choices questions and two essay questions.
  1. Do not separate the exam book. Turn in the entire exam at the end.
  1. Budgeting your time efficiently.
  1. Good luck.

1. One of the most popular amortizing mortgages today is the constant payment mortgage. Which of the following characterizes the components of the CPM payment over the life of the loan?

Interest / Amortization / Payment
A. / Decreasing / Decreasing / Decreasing
B. / Increasing / Decreasing / Constant
C. / Decreasing / Increasing / Constant
D. / Constant / Constant / Constant

2. In comparison to the first month’s payment of a CAM, the first month’s payment of a CPM:

A.is higher.

B.is lower.

C.the same.

D.cannot be determined with this information.

3. At the end of five years, calculating the loan balance of a constant payment mortgage is simply:

A.the present value of a single amount.

B.the future value of a single amount.

C.the present value of an ordinary annuity.

D.the future value of an ordinary annuity.

You bought a $250,00 house 10 years ago using a 30 year fixed rate mortgage with

a. 20% down payment and

b. 6% interest rate.

You have been paying the amount according to the schedule every month.

For Question 4-7, assume the loan is aconstant payment mortgage (CPM).

4.How much balance do you still owe to the mortgage bank?

a. / < $150,000
b. / $150,000 - $160,000
c. / $160,000 - $170,000
d. / > $170,000

5.How much interests have you paid over the first 10 years?

a. / < $100,000
b. / $100,000 - $110,000
c. / $110,000 - $120,000
d. / > $120,000

6.What is the proportion of next (121th) payment that will go to principal payment?

a. / <20%
b. / 20-35%
c. / 35-50%
d. / >50%

7.If you plan to pay off the mortgage in the next 10 years, instead of 20 years, how much more than the minimum payment do you need to make each month?

a. / < $250
b. / $250 - $500
c. / $500 - $750
d. / > $750

You bought a $250,00 house 10 years ago using a 30 year fixed rate mortgage with

a. 20% down payment and

b. 6% interest rate.

You have been paying the amount according to the schedule every month.

For Question 8-10, assume the loan is interest only for the initial 10 years and then fully amortize over the remaining 20 years like a 20 year CPM.

8.How much balance do you still owe to the mortgage bank?

a. / < $150,000
b. / $150,000 - $160,000
c. / $160,000 - $170,000
d. / > $170,000

9.How much interests have you paid over the first 10 years?

a. / < $100,000
b. / $100,000 - $110,000
c. / $110,000 - $120,000
d. / > $120,000

10.What is the proportion of next (121th) payment that will go to principal payment?

a. / <20%
b. / 20-35%
c. / 35-50%
d. / >50%

.

You bought a $250,00 house 10 years ago using a 30 year fixed rate mortgage with

a. 20% down payment and

b. 6% interest rate.

You have been paying the amount according to the schedule every month.

For Question 11-13, assume the loan is CAM

11.How much balance do you still owe to the mortgage bank?

a. / < $150,000
b. / $150,000 - $160,000
c. / $160,000 - $170,000
d. / > $170,000

12.How much interests have you paid over the first 10 years?

a. / < $100,000
b. / $100,000 - $110,000
c. / $110,000 - $120,000
d. / > $120,000

13.What is the proportion of next (121th) payment that will go to principal payment?

a. / <20%
b. / 20-35%
c. / 35-50%
d. / >50%

Q14. You are considering the following graduate payment mortgage:

i. fixed interest rate of 9%

ii. two adjustments of payment after 2nd year and 4th year (there will be 3 levels of payments)

iii. at each adjustment the monthly payment will go up by 20%

iv.30 year loan term and fully amortizing (balance will be zero after 360 months)

What is the monthly payment in the first year if you want to borrow $500,000?

Q15. A reverse mortgage is issued for a house that is valued at $300,000 today at 6% annual interest rate.

i. The borrower will receive an initial lump sum payment of $10,000

ii. In addition, the borrower will receive $2,000 each month for the next 10 years.

a. What is the mortgage balance in 10 years (2 pts)?

b. What do you expect the borrower to do in 10 years if the house price stays the same as today? What if house price increases by 2% each year (2 pts)?

Q16. Done. Make sure you have a working calculator and formula sheet for the exam.

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