1
NEW MODIFIED IAAO 102 ACTUAL PRACTICE
EXAM QUESTIONS WITH CORRECT
DETAILED SOLUTIONS
To obtain value using the IRV formula, one must _____________ the income
by the rate. -- ANSWER--divide
To obtain value using the VIF formula, one must ______________ the income
by the factor. -- ANSWER--multiply
Return of Investment -- ANSWER--Recapture Rate (Getting Back the amount
invested)
Investors are averse to risk. A savings account insured by the government is
relatively free of risk. Real estate may be a risky investment due to a variety of
factors affecting its economic environment. -- ANSWER--Safety
Components of Capitalization Process -- ANSWER--Value, Net Operating
Income, and Capitalization Rate
The underlying economic principle of 3 approaches to value -- ANSWER-
substitution
, 2
Market Value is also known as -- ANSWER--value in exchange
Most probable price the property will sell for in an arm's-length transaction
under normal conditions on the open market -- ANSWER--market value
Higher Cap Rate -- ANSWER--Means Higher Risk and Lower Overall Value
Lower Cap Rate -- ANSWER--Means Lower Rise and Higher Overall Value
Return of investment aka -- ANSWER--Recapture Rate (or getting back the
amount invested)
Return on Investment -- ANSWER--Overall Yield Rate (or discount rate; profit
realized in addition to getting back the amount invested)
The four types of mortgages classified according to repayment provisions. --
ANSWER--Variable or Adjustable-Rate Mortgage, Straight Mortgage, Partially
Amortized Mortgage, Reverse Mortgage
A payment on the balance due of a note at the end of the loan term that is in
excess of the regular payment amounts is called a _____________________. --
ANSWER--balloon payment.
, 3
What is the difference between straight mortgages and partially amortized
mortgages? -- ANSWER--Straight mortgages initially involve interest-only
payments, while partially amortized mortgages include both principal and
interest in the regular payments but may have a balloon payment at the end.
A _________________ mortgage covers real estate as well as personal property
included in real estate. -- ANSWER--Package Mortgage
The four variables in real estate financing that affect the mortgage payment are?
-- ANSWER--Amount Borrowed, Interest Rate, Term of Loan, Frequency of
Payments
The ________________ _______________________ rate or discount rate
reflect the return on the investment. -- ANSWER--overall yield
The summation concept is a theoretical procedure in developing the discount
rate for a real estate investment and is comprised of the following four parts: --
ANSWER--Safe Rates, Risk Rate, Rate for Non Liquidity, Rate for
Management
, 4
The ________________ __________________ rate reflects the relationship
between the real estate taxes and the value of the property. -- ANSWER-
effective tax
The nine factors influencing the decisions of investors -- ANSWER--Safety,
Liquidity, Collateral, Time, Size, Management, Appreciation, Income Tax
Advantages, Leverage.
Time to convert to actual dollars -- ANSWER--Liquidity
Collateral -- ANSWER--The entire investment in a savings account can be used
as collateral for a loan. However, lending institutions generally will only allow a
percentage of the real estates market value to be used as collateral.
Leverage -- ANSWER--The borrowing of funds in hopes of earnings greater
return than the cost of the borrowed funds.
3 types of leverage. -- ANSWER--Positive negative neutral
The benefits from borrowing funds exceed the costs of borrowing. --
ANSWER--Positive leverage
NEW MODIFIED IAAO 102 ACTUAL PRACTICE
EXAM QUESTIONS WITH CORRECT
DETAILED SOLUTIONS
To obtain value using the IRV formula, one must _____________ the income
by the rate. -- ANSWER--divide
To obtain value using the VIF formula, one must ______________ the income
by the factor. -- ANSWER--multiply
Return of Investment -- ANSWER--Recapture Rate (Getting Back the amount
invested)
Investors are averse to risk. A savings account insured by the government is
relatively free of risk. Real estate may be a risky investment due to a variety of
factors affecting its economic environment. -- ANSWER--Safety
Components of Capitalization Process -- ANSWER--Value, Net Operating
Income, and Capitalization Rate
The underlying economic principle of 3 approaches to value -- ANSWER-
substitution
, 2
Market Value is also known as -- ANSWER--value in exchange
Most probable price the property will sell for in an arm's-length transaction
under normal conditions on the open market -- ANSWER--market value
Higher Cap Rate -- ANSWER--Means Higher Risk and Lower Overall Value
Lower Cap Rate -- ANSWER--Means Lower Rise and Higher Overall Value
Return of investment aka -- ANSWER--Recapture Rate (or getting back the
amount invested)
Return on Investment -- ANSWER--Overall Yield Rate (or discount rate; profit
realized in addition to getting back the amount invested)
The four types of mortgages classified according to repayment provisions. --
ANSWER--Variable or Adjustable-Rate Mortgage, Straight Mortgage, Partially
Amortized Mortgage, Reverse Mortgage
A payment on the balance due of a note at the end of the loan term that is in
excess of the regular payment amounts is called a _____________________. --
ANSWER--balloon payment.
, 3
What is the difference between straight mortgages and partially amortized
mortgages? -- ANSWER--Straight mortgages initially involve interest-only
payments, while partially amortized mortgages include both principal and
interest in the regular payments but may have a balloon payment at the end.
A _________________ mortgage covers real estate as well as personal property
included in real estate. -- ANSWER--Package Mortgage
The four variables in real estate financing that affect the mortgage payment are?
-- ANSWER--Amount Borrowed, Interest Rate, Term of Loan, Frequency of
Payments
The ________________ _______________________ rate or discount rate
reflect the return on the investment. -- ANSWER--overall yield
The summation concept is a theoretical procedure in developing the discount
rate for a real estate investment and is comprised of the following four parts: --
ANSWER--Safe Rates, Risk Rate, Rate for Non Liquidity, Rate for
Management
, 4
The ________________ __________________ rate reflects the relationship
between the real estate taxes and the value of the property. -- ANSWER-
effective tax
The nine factors influencing the decisions of investors -- ANSWER--Safety,
Liquidity, Collateral, Time, Size, Management, Appreciation, Income Tax
Advantages, Leverage.
Time to convert to actual dollars -- ANSWER--Liquidity
Collateral -- ANSWER--The entire investment in a savings account can be used
as collateral for a loan. However, lending institutions generally will only allow a
percentage of the real estates market value to be used as collateral.
Leverage -- ANSWER--The borrowing of funds in hopes of earnings greater
return than the cost of the borrowed funds.
3 types of leverage. -- ANSWER--Positive negative neutral
The benefits from borrowing funds exceed the costs of borrowing. --
ANSWER--Positive leverage
