AWMA STUDY EXAM LATEST GUIDED QUESTIONS
AND ANSWERS SURE A+
✔✔Which of the following cap rates would result in the highest valuation for a property
that has NOI of $1,250,000?
A) 12%
B) 5%
C) 10%
D) 7% - ✔✔B) A capitalization rate (cap rate) is an investor's required return. The lower
the cap rate, the less return an investor would require. Stated another way, the lower
the cap rate being used, the more an investor would be willing to pay. In this case,
$1,250,000/.05 = $25,000,000 intrinsic value. As the cap rate increases (such as to 7%)
the intrinsic value of the property will decrease. Mod 3
✔✔Nontraded REITs
A)are suitable for most investors.
B)are primarily sold by insurance companies.
C)offer many of the same benefits as publicly traded REITs.
D)typically do not have front-end fees. - ✔✔C) Both publicly traded and nontraded
REITs offer income and are a potential inflation hedge. Tax treatment for both is also
similar. Mod 3
,✔✔Which of the following real estate property expenses is NOT an operating expense?
A)Mortgage payments
B)Management fees
C)Reserve for replacements
D)Utility payments - ✔✔A) Mortgage payments are not part of operating expenses. Mod
3
✔✔For an investor who has purchased only publicly traded REITs in the past, which of
the following risks should he or she be aware of regarding the market value of
nontraded REITs on any given day?
A)Transparency risk
B)Systematic risk
C)Distribution risk
D)Pricing risk - ✔✔D) Nontraded REITs are typically sold over a period of years at a
fixed price per share. There is no trading market, and the offering prices do not always
reflect the net asset value. Share valuations are only required every 18 months, so
there is substantial pricing risk with nontraded REITs. Mod 3
✔✔Which of the following types of private real estate funds would most likely invest in a
strip mall that needs a renovation?
A) Value-added
B)Opportunistic
C)Speculative
D) Core - ✔✔A) A strip mall needing a renovation to bring back customers would be an
example of a value-added property investment. Mod 3
✔✔Your client purchased a stock two years ago at $45 per share, and it is currently
trading at $25 per share. Even though the prospects for the company do not look good,
your client does not want to sell the stock until he can at least break even. The
behavioral bias closest to what your client may be exhibiting is
A)representativeness.
B)loss aversion.
C)status quo.
D)anchoring. - ✔✔B) Not wanting to take a loss is loss aversion. Mod 3
✔✔With a SIMPLE plan
A)the employee may not make elective contributions.
B)an IRA must be established.
C)the plan is subject to the nondiscrimination rules applicable to other qualified plans.
, D)all contributions to an employee's account are fully vested. - ✔✔D) The contributions
to an employee's account under a SIMPLE plan are fully vested. A SIMPLE plan is not
subject to the nondiscrimination rules applicable to other qualified plans. A SIMPLE plan
can be either a 401(k) plan or an IRA. An employee may make elective contributions to
a SIMPLE IRA or a SIMPLE 401(k) plan. Mod 4
✔✔Phillip and his family own all the shares of a small corporation that manufactures
specialty shoes. The firm employs 120 full-time workers. There is no market for the
stock, but Phillip would like to be able to cash in some of his shares each year so that
he can live better, have more money for daily expenses, and do some traveling. Which
one of the following is the best solution to his liquidity problem?
A)Establish a SEP-IRA
B)Establish an ESOP
C)Work out a redemption buy-sell agreement with family members
D)Consider a public offering - ✔✔B) An ESOP would create a market for the company
stock and thus allow Phillip to cash in some of his shares. Funding a SEP-IRA requires
cash outlays, a public offering would have limited appeal to investors and would be
expensive, and a redemption buy-sell agreement would work only if Phillip were to pass
away. Mod 4
✔✔For tax purposes, which one of the following forms of business is not considered a
pass-through entity?
A)Sole proprietorship
B)S corporation
C) C corporation
D)Partnership - ✔✔C) C corporations are taxed at the corporate level and distributions
to shareholders are taxed as well. Losses do not flow through to shareholders. For tax
purposes, sole proprietorships, S corporations, and partnerships are considered pass-
through entities as all earnings and losses are passed through to its shareholders. Mod
4
✔✔Money purchase plans
A)have a maximum contribution amount of $19,500.
B)require the employer to contribute a fixed percentage of compensation to employee
accounts.
C)are employee funded.
D)are only permitted for companies with 100 or fewer employees. - ✔✔B) The
requirement of an employer contribution equal to a fixed percentage of compensation is
a characteristic of money purchase plans. The limitation of 100 or fewer employees
applies to SIMPLE plans. The maximum contribution amount of $19,500 is for employee
deferrals to a 401(k) plan. Money purchase plans are funded by the employer, and the
AND ANSWERS SURE A+
✔✔Which of the following cap rates would result in the highest valuation for a property
that has NOI of $1,250,000?
A) 12%
B) 5%
C) 10%
D) 7% - ✔✔B) A capitalization rate (cap rate) is an investor's required return. The lower
the cap rate, the less return an investor would require. Stated another way, the lower
the cap rate being used, the more an investor would be willing to pay. In this case,
$1,250,000/.05 = $25,000,000 intrinsic value. As the cap rate increases (such as to 7%)
the intrinsic value of the property will decrease. Mod 3
✔✔Nontraded REITs
A)are suitable for most investors.
B)are primarily sold by insurance companies.
C)offer many of the same benefits as publicly traded REITs.
D)typically do not have front-end fees. - ✔✔C) Both publicly traded and nontraded
REITs offer income and are a potential inflation hedge. Tax treatment for both is also
similar. Mod 3
,✔✔Which of the following real estate property expenses is NOT an operating expense?
A)Mortgage payments
B)Management fees
C)Reserve for replacements
D)Utility payments - ✔✔A) Mortgage payments are not part of operating expenses. Mod
3
✔✔For an investor who has purchased only publicly traded REITs in the past, which of
the following risks should he or she be aware of regarding the market value of
nontraded REITs on any given day?
A)Transparency risk
B)Systematic risk
C)Distribution risk
D)Pricing risk - ✔✔D) Nontraded REITs are typically sold over a period of years at a
fixed price per share. There is no trading market, and the offering prices do not always
reflect the net asset value. Share valuations are only required every 18 months, so
there is substantial pricing risk with nontraded REITs. Mod 3
✔✔Which of the following types of private real estate funds would most likely invest in a
strip mall that needs a renovation?
A) Value-added
B)Opportunistic
C)Speculative
D) Core - ✔✔A) A strip mall needing a renovation to bring back customers would be an
example of a value-added property investment. Mod 3
✔✔Your client purchased a stock two years ago at $45 per share, and it is currently
trading at $25 per share. Even though the prospects for the company do not look good,
your client does not want to sell the stock until he can at least break even. The
behavioral bias closest to what your client may be exhibiting is
A)representativeness.
B)loss aversion.
C)status quo.
D)anchoring. - ✔✔B) Not wanting to take a loss is loss aversion. Mod 3
✔✔With a SIMPLE plan
A)the employee may not make elective contributions.
B)an IRA must be established.
C)the plan is subject to the nondiscrimination rules applicable to other qualified plans.
, D)all contributions to an employee's account are fully vested. - ✔✔D) The contributions
to an employee's account under a SIMPLE plan are fully vested. A SIMPLE plan is not
subject to the nondiscrimination rules applicable to other qualified plans. A SIMPLE plan
can be either a 401(k) plan or an IRA. An employee may make elective contributions to
a SIMPLE IRA or a SIMPLE 401(k) plan. Mod 4
✔✔Phillip and his family own all the shares of a small corporation that manufactures
specialty shoes. The firm employs 120 full-time workers. There is no market for the
stock, but Phillip would like to be able to cash in some of his shares each year so that
he can live better, have more money for daily expenses, and do some traveling. Which
one of the following is the best solution to his liquidity problem?
A)Establish a SEP-IRA
B)Establish an ESOP
C)Work out a redemption buy-sell agreement with family members
D)Consider a public offering - ✔✔B) An ESOP would create a market for the company
stock and thus allow Phillip to cash in some of his shares. Funding a SEP-IRA requires
cash outlays, a public offering would have limited appeal to investors and would be
expensive, and a redemption buy-sell agreement would work only if Phillip were to pass
away. Mod 4
✔✔For tax purposes, which one of the following forms of business is not considered a
pass-through entity?
A)Sole proprietorship
B)S corporation
C) C corporation
D)Partnership - ✔✔C) C corporations are taxed at the corporate level and distributions
to shareholders are taxed as well. Losses do not flow through to shareholders. For tax
purposes, sole proprietorships, S corporations, and partnerships are considered pass-
through entities as all earnings and losses are passed through to its shareholders. Mod
4
✔✔Money purchase plans
A)have a maximum contribution amount of $19,500.
B)require the employer to contribute a fixed percentage of compensation to employee
accounts.
C)are employee funded.
D)are only permitted for companies with 100 or fewer employees. - ✔✔B) The
requirement of an employer contribution equal to a fixed percentage of compensation is
a characteristic of money purchase plans. The limitation of 100 or fewer employees
applies to SIMPLE plans. The maximum contribution amount of $19,500 is for employee
deferrals to a 401(k) plan. Money purchase plans are funded by the employer, and the
