FIN 351 CHAPTER 14 AND 15 QUIZ WITH ANSWERS
1. An investor agreed to sell a warehouse five years from now to the tenant who currently rents the
space. The tenant will continue to pay $20,000 rent at the end of each year including year 5 in
which he will purchase the building for an additional $150,000. Assuming the investor's required
rate of return is 10%, how much is this deal presently worth to the investor who was willing to
sell?
A. $241, 451.07
B. $1,032,475.67
C. $168,953.93
D. $363,678.50 - Answer✔️ ✔️ C. $168,953.93
2. An investor just purchased an office building for $100,000. He knows for certain that he can sell
the building for $110,000 in five years. Approximately how much does he need to charge in
annual rent in order to achieve a 15% annual return on the deal (rounded to the nearest
hundred dollars)?
A. $20,500
B. $13,500
C. $8,000
D. $2,500 - Answer✔️ ✔️ B. $13,500
3. Assume that a piece of land is currently valued at $50,000. If this piece of land is expected to
appreciate at an annual rate of 5% per year for the next twenty years, how much will the land be
worth twenty years from now?
A. $100,898.99
B. $123,860.81
C. $132,664.89
D. $112,633.09 - Answer✔️ ✔️ C. $132,664.89
4. From the borrower's perspective, the effective borrowing cost is often viewed as the implied
internal rate of return (IRR), since it takes into consideration costs that the borrower faces, but
which are not passed on as income to the lender. Included in this calculation are certain closing
costs, which may consist of all of the following except
, A. title insurance.
B. mortgage insurance.
C. earnest money.
D. recording fees. - Answer✔️
✔️C. earnest money.
5. Given the following information on a fixed-rate fully amortizing loan, determine the maximum
amount that the lender will be willing to provide to the borrower: loan term: 30 years; monthly
payment: $800; interest rate: 6%.
A. $133,433
B. $9,295.15
C. $6,707
D. $13,333 - Answer✔️ ✔️A. $133,433
6. Given the following information on an interest-only mortgage, calculate the monthly mortgage
payment: loan amount: $56,000; term: 15 years; interest rate: 7.5%.
A. $4,200
B. $519.13
C. $350
D. $169.13 - Answer✔️ ✔️ C. $350
7. Given the following information, calculate the balloon payment for a partially amortized
mortgage: loan amount: $84,000; term to maturity: 7 years; amortization term: 30 years;
interest rate: 4.5%; monthly payment: $425.62.
A. $73,102
B. $84,000
C. $9,458
D. $30,620 - Answer✔️ ✔️ A. $73,102
8. In considering a 3/1 adjustable rate mortgage (ARM), the interest rate will be fixed for how many
years?
A. two years
B. four years
C. one year
D. three years - Answer✔️ ✔️ D. three years
9. Partially amortizing mortgage loans require periodic payments of principal but are not paid off
completely over the loan's term to maturity. Instead, the balance of the principal amount is paid
in a lump sum by a set date prior to the fully amortized payment schedule in what is commonly
referred to as a
1. An investor agreed to sell a warehouse five years from now to the tenant who currently rents the
space. The tenant will continue to pay $20,000 rent at the end of each year including year 5 in
which he will purchase the building for an additional $150,000. Assuming the investor's required
rate of return is 10%, how much is this deal presently worth to the investor who was willing to
sell?
A. $241, 451.07
B. $1,032,475.67
C. $168,953.93
D. $363,678.50 - Answer✔️ ✔️ C. $168,953.93
2. An investor just purchased an office building for $100,000. He knows for certain that he can sell
the building for $110,000 in five years. Approximately how much does he need to charge in
annual rent in order to achieve a 15% annual return on the deal (rounded to the nearest
hundred dollars)?
A. $20,500
B. $13,500
C. $8,000
D. $2,500 - Answer✔️ ✔️ B. $13,500
3. Assume that a piece of land is currently valued at $50,000. If this piece of land is expected to
appreciate at an annual rate of 5% per year for the next twenty years, how much will the land be
worth twenty years from now?
A. $100,898.99
B. $123,860.81
C. $132,664.89
D. $112,633.09 - Answer✔️ ✔️ C. $132,664.89
4. From the borrower's perspective, the effective borrowing cost is often viewed as the implied
internal rate of return (IRR), since it takes into consideration costs that the borrower faces, but
which are not passed on as income to the lender. Included in this calculation are certain closing
costs, which may consist of all of the following except
, A. title insurance.
B. mortgage insurance.
C. earnest money.
D. recording fees. - Answer✔️
✔️C. earnest money.
5. Given the following information on a fixed-rate fully amortizing loan, determine the maximum
amount that the lender will be willing to provide to the borrower: loan term: 30 years; monthly
payment: $800; interest rate: 6%.
A. $133,433
B. $9,295.15
C. $6,707
D. $13,333 - Answer✔️ ✔️A. $133,433
6. Given the following information on an interest-only mortgage, calculate the monthly mortgage
payment: loan amount: $56,000; term: 15 years; interest rate: 7.5%.
A. $4,200
B. $519.13
C. $350
D. $169.13 - Answer✔️ ✔️ C. $350
7. Given the following information, calculate the balloon payment for a partially amortized
mortgage: loan amount: $84,000; term to maturity: 7 years; amortization term: 30 years;
interest rate: 4.5%; monthly payment: $425.62.
A. $73,102
B. $84,000
C. $9,458
D. $30,620 - Answer✔️ ✔️ A. $73,102
8. In considering a 3/1 adjustable rate mortgage (ARM), the interest rate will be fixed for how many
years?
A. two years
B. four years
C. one year
D. three years - Answer✔️ ✔️ D. three years
9. Partially amortizing mortgage loans require periodic payments of principal but are not paid off
completely over the loan's term to maturity. Instead, the balance of the principal amount is paid
in a lump sum by a set date prior to the fully amortized payment schedule in what is commonly
referred to as a
