1. An investor is contemplating buying a load fund versus a no load mutual fund.

She is trying to figure

out the actual amount she will have to spend on the load fund. The shares have a net asset value
(NAV) of $34.50 and a load of 5.2%. Determine which type of fund will always have a share price
equal to the NAV and the price she will pay for the load fund.
Fund

Offering Price

*A. open-end

$36.39

B. open-end

$34.50

C. close-end

$36.39

2. A sales commission charged by an investment company at the time of redemption is called a:

A. 12b-1 fee
*B. back-end load
C. front-end load
3. Bill Lynch, CFA, is a branch manager for a brokerage firm. He is reviewing a set of slides for a
sales presentation that one of his subordinates will deliver next week. In a section that explains the
nature of the various fees charged by investment companies, Lynch finds slides that state the
following:
Slide 8: Fees charged by investment companies are a trade-off from the investors point of view.
Lower fees will subtract less from the investors rate of return, but higher fees give portfolio managers
greater incentives to achieve higher returns.
Slide 12: When choosing between a funds share classes, the investor should select the class with the
lowest total annual fees.
Should Lynch agree or disagree with the statements on these two slides?
Slide 8

Slide 12

A. Agree

Disagree

B. Disagree

Agree

*C. Disagree

Disagree

4. The net asset value of a closed-end mutual fund is $11.20, and the share price is $10.00. The
discount or premium is closest to:
A. 12.0% premium
*B. 10.7% discount
C. 12.0% discount
5. Which of the following statements about investment companies is least accurate?
A. The investment company's board of directors hires an investment management company to select
securities, manage the portfolio, and handle administrative duties

B. Generally the investment advisory firm initiating the fund will also act as the fund's investment
management company
*C. Investment companies are generally wholly owned subsidiaries of the investment advisory firm
that creates them

6. The net asset value (NAV) of an open-end fund is determined by the:

A. book value of all assets divided by the number of shares outstanding
*B. market value of assets minus liabilities divided by the number of shares outstanding
C. supply and demand for the shares in the investment management company
7. An investment company that does not stand ready to redeem investor shares at market value is
classified as:
*A. a closed-end investment company
B. a managed investment company
C. an open-end investment company
8. Both open-end and closed-end funds typically charge:
*A. an annual management fee
B. a front-end load
C. a premium to the underlying net asset value (NAV)
9. Which statement about mutual funds is most accurate?
A. The liquidity of an open-end fund is provided by the open market.
B. Some open-end funds charge no fees.
*C. The redemption fee for a closed-end fund is the commission charged on the sale and a portion
of the bid/ask spread of the shares

10. A closed-end fund:

A. has its price determined by the net asset value (NAV)
*B. has its price determined by supply and demand, regardless of its net asset value (NAV)
C. is traded in the primary market but not the secondary market

11. The following table shows a mutual fund comprised of four stocks, each stock's number of shares,
and the price per share.
Stock

Shares

Price

6,200

$10

6,000

$34

3,900

$8

2,600

$52

Total Shares = 25,000

Assuming no liabilities, the net asset value (NAV) of this fund is:
A. $26.00
B. $23.12
*C. $17.30

12. Growth, value, large-cap, and small-cap investing are all examples of:
*A. style investment strategies
B. sector investment strategies
C. index investment strategies

13. A portfolio that pursues a stable-value investment strategy would most likely invest in:
A. low P/E stocks
*B. short-term Treasuries
C. high P/E stocks
14. Closed-end funds and exchange traded funds (ETFs) have which of the following characteristics
in common?
A. Both closed-end funds and ETFs stand ready to redeem shares
*B. Shares of both closed-end funds and ETFs trade in the secondary market
C. The structures of closed-end funds and ETFs prevent shares from trading at a significant
premium or discount to NAV
15. Which of the following statements regarding exchange traded funds (ETFs) is FALSE?
A. ETFs are funds that can be traded in a stock market
*B. ETF investors own shares of the underlying investment company
C. ETF shares can be sold short or margined

16. Which statement is the least accurate analysis of a mutual fund equity investment strategy?
A. Sector funds may set performance targets drastically different than the overall markets expected
returns

B. Global funds managed by U.S. investment companies often contain U.S. stocks
*C. Stable value funds invest in long-term fixed-income securities with regular cash flows and a
steady interest rate
17. Which statement about the advantages and disadvantages of exchange-traded funds (ETFs) is
least accurate?
*A. ETFs represent an attractive diversification tool, but investors cannot check their composition
daily
B. Most ETFs have low fees, but some may cost more to trade because of high bid/ask spreads
C. ETFs offer less capital-gains tax liability than open-end funds

18. Which of the following risks are specific to exchange traded funds (ETFs) that are allowed to
purchase derivatives?
*A. Credit risk
B. Tracking error risk
C. Market risk

19. Investors can diversify their direct real estate holdings through all of the following vehicles
EXCEPT:
A. commingled funds
*B. co-operative shares
C. limited partnerships

20. Mortgages are considered to be a form of real estate investment because:

A. the investor receives a constant stream of cash flows
*B. if the borrower defaults on the loan, the lender may end up owning the property
C. the borrower will own the property at the end of the loan term

21. Which of the following is least likely to be a form of real estate investment?
A. Aggregation vehicles
B. Leveraged equity position
*C. Property insurance
22. Demand for real estate is a function of all of the following factors EXCEPT?

A. Population characteristics of the community

*B. Competitive properties
C. The terms and conditions of mortgage financing
23. Which of the following statements regarding real estate valuation is TRUE?
*A. Each property is unique, so the investment value may be dependent upon the particular use
planned for the property
B. The estimated market value of a property depends upon the particular investor
C. The most reliable real estate valuation method is the cost approach
24. Which of the following least likely affects a propertys investment potential?
*A. Structure of the financing mechanisms used to buy the property
B. The legal rights associated with the property
C. The activity around the property, both commercial and non-commercial

25. Define the sales comparison method and the cost approach
A. Sales: uses the price of a similar property or properties from recent transactions to value real
estate; cost: links the value of a property to an investor's specific marginal tax rate
B. Sales: uses a discounted cash flow model to estimate the present value of the future income
produced by the property; cost: links the value of a property to an investor's specific marginal tax rate
*C. Sales: uses the price of a similar property or properties from recent transactions to value real
estate; cost: the value of real estate is determined by the replacement cost of improvements, plus an
estimate for the value of the land
26. Which of the following is least likely a characteristic of the income method for real estate
valuation?
A. Require a discounted cash flow model
B. Ignore future changes in operating income
*C. Account for the effects of income taxes
27. Consider the following descriptions of approaches used in valuing real estate:
Approach 1: In this approach, the present value of after-tax cash flows are calculated based on the
investors required rate of return before the equity portion of the investment is deducted.
Approach 2: In this approach, the value of land is estimated and is added to the price that would have
to be paid if a property had to be replaced.
Approach 3: In this approach, an appraisal price is estimated as the discounted net operating income
based on the market required rate of return.
Approach 4: This approach relies on examining recent transaction prices from a group of similar
properties and depends on a reasonably liquid market.

List in order, from Approach 1 to Approach 4, the real estate valuation methods that correspond to
each of the four valuation approaches listed above.
*A. The discounted after-tax cash flow model, the cost method, the income method, and the sales
comparison method
B. The income method, the cost method, the sales comparison method, and the discounted aftertax cash flow model
C. The income method, the discounted after-tax cash flow model, the sales comparison method,
and the cost method

28. Which of the following is least likely a disadvantage of the cost approach method of estimating the
market value for real estate?
A. market value of a property may differ significantly from its construction cost
B. estimating the value of the land may be difficult
*C. the replacement cost of existing improvements may be difficult to determine
29. The gross rental income for an apartment building allowing for vacancies is $500,000. Estimated
expenses total $200,000. If the capitalization rate is 10%, the value of this building using the direct
capitalization approach is closest to:
A. $3,500,000
B. $2,500,000
*C. $3,000,000

30. All of the following variables might be factors when calculating the net operating income (NOI) for
a property EXCEPT:
A. collection losses
B. insurance
*C. depreciation
31. An investor is considering purchasing an office building that is currently 95% leased.
Gross potential rental income

$105,000

Insurance and taxes

$9,000

Repairs and maintenance

$15,000

Depreciation

$11,000

What is the building's net operating income (NOI), based on the above table?
A. $64,750
*B. $75,750
C. $81,000

32. Johnson is considering the purchase of Happy Valley Acres, a 300-unit apartment complex. She
has hired Carson, CFA, to advise her on the investment. Carson has estimated the following data for
Happy Valleys next accounting period:
Potential rental income = $3.80 million
Vacancy rate = 3.5%
Insurance costs = $250,000
Financing costs = $940,000
Property taxes = $400,000
Utility expense = $120,000
Repair costs = $200,000
Depreciation = $350,000
Required return = 8%
The propertys net operating income (NOI) and value should be closest to:
NOI

Value

A. $2.83 million

$33.75 million

*B. $2.70 million

$33.75 million

C. $2.70 million

$21.60 million

33. Net operating income (NOI) is calculated by subtracting which of the following from the property's
gross potential rental income?
*A. Property taxes
B. Depreciation
C. Income taxes

34. Based upon the following information, what is the net operating income (NOI) of the property?
Estimated Market Value

$600,000

Capitalization Rate

20%

Taxes

$27,000

Operating Expenses

$107,000

A. $104,000
B. $98,600
*C. $120,000

35. Jill Booton is evaluating an apartment building as a possible investment to add to her portfolio.
She has been told that real estate is a good addition to a portfolio for diversification purposes. Jill will
not be able to handle the maintenance issues at the complex and thus must hire a full-time
maintenance employee at $35,000 per year. She will also hire a full-time manager at $40,000 per
year. Property taxes are expected to be $75,000 per year and insurance will be another $25,000. If
fully occupied, the gross rental income from the property will be $850,000. Due to the location of the
building, Jill estimates a very low vacancy rate of 3.5 percent annually. The net operating income of
the property is closest to:
A. $825,250
*B. $645,250
C. $4,963,462
36. A real estate property has net operating income of $956,000, requires taxes of $143,400, and has
a capitalization rate of 16%. The estimated property value is closest to:
A. $7,353,800
B. $5,078,750
*C. $5,975,000

37. A portfolio manager is considering the purchase of an office building. He has identified the major
characteristics of a property that affect value, and has assigned a quantitative rating to each one,
based upon recent comparable sales in the area. Using a regression model, he has developed
benchmark values for each characteristic, which he will use to estimate the market value of the
potential investment. This method of estimating property value is best described as the:
A. sales comparison approach
*B. hedonic price estimation
C. regression price model

38. The data below pertains to an office buildings next reporting period:
Gross rental income = $6.5 million
Operating expense = $2.3 million
Financing expense = $900,000
Depreciation expense = $750,000
Vacancy rate = 8.5%
The market expects a return of 12.3%. The value of the office building is closest to:
A. $16.24 million
*B. $29.65 million
C. $22.33 million

39. A real estate agent contacts an investor regarding a property that has recently come on the
market. The real estate agent can provide reliable information regarding the propertys net operating
income, as well as the prevailing market cap rate, based on recent comparable sales. The investor
can best estimate the market value of the property, with the information supplied by the real estate
agent, using the:
*A. income approach
B. discounted cash flow model
C. sales comparison approach

40. Use the following information for questions 40 - 42

John Williams wants to purchase an apartment complex. The complex consists of 75 units each
renting for $700 per month. The estimated vacancy and collection loss rate is 7%. The insurance for
the building is $40,000 annually and taxes are $22,000 annually. Utilities are $18,000 and the
maintenance expense is $29,000.
Assume a market cap rate of 11%. Recent sales of nearby apartment complexes have resulted in the
following information.
Characteristics

Units

Slope Coefficient in $ per Unit

Proximity to downtown

Miles

-350,000

Vacancy rate

Percent

-500

Building size

Units

+75,000

Williams' proposed apartment complex is 4 miles away from downtown and has an estimated vacancy
rate of 6%.
What is the net operating income (NOI) for Williams' proposed apartment complex?
*A. $476,900
B. $498,900
C. $436,153
41. Using the sales comparison approach, the value of the apartment complex is:
A. $4,060,000
B. $3,894,500
*C. $4,222,000
42. Using the income approach, the value of Williams' apartment complex is:
A. $4,525,455

B. $5,727,273
*C. $4,335,455

43. A property has a gross potential rental income of $740,000. Operating expenses, excluding
insurance and property taxes, amount to 30% of gross rents. Insurance and property taxes total
$16,800. If the market capitalization rate is 22%, the value of this property is closest to:
*A. $2,278,000
B. $1,727,000
C. $2,431,000

44. A real estate analysis estimates the market value of an income-producing property at $2,560,000.
The annual gross potential rental income is $596,000, the annual property operating expenses and
taxes are $178,800, and the annual vacancy and collection losses are $89,400. What capitalization
rate was used by the analysis to assess the property at $2,560,000?
A. 0.1275
*B. 0.1280
C. 0.1290

45. An investor made the following purchase:

Bought an office building for $500,000 using 90% financing.
The borrowing cost was 10%.
They received $29,000 at year-end from rentals.
They sold the building for $520,000 at the end of the year.
Assuming a flat tax rate on income and capital gains of 25% what was the return on equity?
A. -3%
*B. +6%
C. +10%

46. Ron Biggs is considering a real estate investment. In the first year, the property is expected to
generate revenue of $65,000. The expense in the first year is $25,000 and the depreciation allowance
will be 2.6 percent of the $350,000 initial investment. Assuming all cash flows occur at the end of the
year and Biggs expects to be in a 35 percent marginal tax bracket, the after-tax cash flow in year 1 is
closest to:

A. $30,900
*B. $29,185
C. $20,085

47. Use the following information for questions 47 and 48

A real estate speculator is considering an investment in a piece of raw land that will be developed. He
expects to invest $150,000 in the land. It will not be developed for three years, but at the end of year
3, he expects a cash flow of $25,000. In years 4 and 5, the cash flow will increase to $35,000, and at
the end of year 5 he expects to sell the land for $185,000. Due to the risky nature of the investment,
he requires an 18% return.
The net present value of this investment is closest to:
A. -$32,903
B. $30,222
*C. -$20,568

48. The internal rate of return (IRR) is closest to:

*A. 14.3%
B. 12.6%
C. 18.1%

49. An investor purchases an office building for $2,500,000. He puts 10 percent down and finances
the remainder at a 9 percent rate of interest. Calculate the first years after-tax cash flow for the
investment using the following information:
NOI

$243,000

Depreciation

$25,000

Annual mortgage payment

$218,000

Marginal income tax rate

28%

A. $11,160
B. $18,000
*C. $20,660

50. Use the following information for questions 50 - 52

ABC Equity Fund has three classes of shares, each holding the same portfolio of securities but having
a different expense structure. The following table summarises the expenses of these classes of
shares.
Class A

Class B*

Class C

Sales charge (load) on purchases

5%

None

None

Deferred sales charge (load on redemptions)

none

#Class B: 4% in first year, declining by 1% each year thereafter

$Class C: 1% for the initial 2 years only
Annual expenses:
Distribution fee

0.25%

0.50%

0.50%

Management fee

0.50%

0.50%

0.50%

Other expenses

0.50%

0.50%

0.50%

* Class B shares automatically convert to Class A shares 72 months (6 years) after purchase.
Assume that expense percentages given will be constant at the given values. Assume that the
deferred sales charges are computed on the basis of NAV. An investor is considering the purchase of
ABC Equity Fund shares. The investor expects equity investments with risk characteristics similar to
ABC Equity Fund to earn 9% per year. He decides to make his selection of fund share class based on
an assumed 9% return each year, gross of any of the expenses given in the preceding table.
Decide which class of shares of ABC Equity Fund is best for the investor if he plans to liquidate his
investment toward the end of year 1:
A. Class A
B. Class B
*C. Class C

51. Decide which class of shares of ABC Equity Fund is best for the investor if he plans to liquidate his
investment toward the end of year 3:

A. Class A
B. Class B
*C. Class C

52. Decide which class of shares of ABC Equity Fund is best for the investor if he plans to liquidate his
investment toward the end of year 15:
A. Class A
*B. Class B
C. Class C

53. Using the price data for several houses recently sold in a particular area, a real estate firm has
identified the main characteristics that affect the prices of houses in that area. The characteristics
identified include the living area, the number of bathrooms, whether the house has a fireplace, and
how old the house is. The estimated slope coefficient for each of these characteristics and the
constant term are as follows:
Characteristic

Units

Coefficient in Rand per Unit

Intercept

---

140 000

Living Area

Square meters

210

Number of bathrooms

Number

10 000

Fireplace

0 or 1

15 000

Age of the house

Years

-6 000

Use these above estimates to value a seven-year-old house with a living area of 400 square meters,
three bathrooms, and a fireplace.
*A. R227 000
B. R269 000

C. R311 000

54. EFTs least likely have:

A. Intraday trading
*B. only institutional investors
C. Cost effective fees

55. Aggregation vehicles in forms on real estate do not include:

A. real Estate investment trust
*B. Mortgages
C. Commingled Funds

56. Capital assets are defined by:

A. their claim on past cash flows of an enterprise
B. their claim on present cash flows of an enterprise
*C. their claim on future cash flows of an enterprise

57. Strategic asset allocation is concerned with:

*A. the long-term asset mix
B. the short term asset mix
C. current market conditions

58. Alpha drivers do not fall into the following category:

A. Concentrated portfolios
B. Nonlinear return processes
*C. Enhanced index products

59. Which of the following comes closest to the future value of investing 500 today in a risky project
that offers an expected rate of return of 6% over the first year, 7% over the second year, and 4% over
the third and last year?
A. 570
B. 580
*C. 590

60. An investor is looking to purchase a rental property today that will provide a cash flow of $125,000
per year for three years, and then grow the cash flow by 2.5% per year forever starting in year 4.
Using a constant discount rate of 10%, which of the following comes closest to the value of the project
today?
A. $0.6 million
B. $1.1 million
*C. $1.6 million

61. Which of the following comes closest to the internal rate of return of a real estate project that
requires an initial investment of $5.5 million, has projected cash flows of $1 million per year for the
first five years, and has a projected terminal value of $6.94 million in year 6?
*A. 19%
B. 17%
C. 15%

62. David Chen is considering investing in a $1,821,500 property with these expected cash flows:
Year

Cash Flow

$204,052

$344,149

$675,453

$711,230

$1,290,775

Which of the following comes closest to the net present value (NPV) of the deal if the discount rate is
12%?
A. -$300,000
*B. $300,000
C. $600,000

63. David Chen is considering investing in a $1,821,500 property with these expected cash flows:
Year

Cash Flow

$204,052

$344,149

$675,453

$711,230

$1,290,775

Which of the following comes closest to the internal rate of return (IRR) of the deal if the discount rate
is 12%?
A. 13%
B. 15%
*C. 17%

64. Which of the following categories would NOT be considered a super asset class?
A. Capital assets
*B. Intangible assets
C. Assets that are a store of value

65. Which of the following actions is MOST accurately associated with tactical asset allocation?
A. Investment decisions with a long term perspective
B. Investment decisions that do not emphasize current market conditions
*C. Investment decisions with a primary goal of maximizing return

66. Which of the following sets of investment categories or products is MOST accurately described as
being driven by beta rather than alpha?
*A. Enhanced index and 130/30 funds
B. Enhanced index and long/short investing
C. Passive index and nonlinear returns

67. Functional obsolescence is where a property losses value due to:

A. Wear and tear
B. Bad traffic
*C. Outdated building design

68. Market participants in property investments do not include:

A. Tenants
*B. Real Estate agent
C. Mortgage lender

69. The correct steps in the property investment process are:

A. Analyse the investment climate and market conditions, identify investors objectives, apply decision
making criteria, develop a financial analysis for the property, make the investment decision
B. Identify investors objectives, apply decision making criteria, analyse the investment climate and
market conditions, develop a financial analysis for the property, make the investment decision
*C. Identify investors objectives, analyse the investment climate and market conditions, develop a
financial analysis for the property, apply decision making criteria, make the investment decision

70. Effective gross income (EGI) is:

A. Total space to let times the rate per square meter
*B. Potential gross income minus effect of vacancy and bad debt plus miscellaneous income such as
parking bays
C. Potential gross income plus effect of vacancy and bad debt plus miscellaneous income such as
parking bays