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Fnce 424:Real Estate Finance And Investment December 2009 Question Paper
Fnce 424:Real Estate Finance And Investment December 2009
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2009
KABARAK UNIVERSITY
UNIVERSITY EXAMINATIONS
2009/2010 ACADEMIC YEAR
FOR THE DEGREE OF BACHELOR OF COMMERCE
COURSE CODE: FNCE 424
NB! INSTRUCTIONS:
1. Answer questions ONE and any other TWO questions
2. Write your registration number clearly, show workings where needed, be neat, brief and to the point
QUESTION 01
i. A real estate developer has tried to sell a property but all in vain. Due to this market condition one has decided
to seek technical advice from industry experts. The situation is as follows: the property is an income generating
that is offered in the market for 100, 000 Kenya shillings. Projected net operating income (NOI) is 40, 000 KES
and the general market rate is 10.4 percent.
Use the above given data to deduce a market value of the property, then advice the investor. 6 marks
ii. Describe the following terminologies as applied in the real estate finance industry:
a) Adjustable Rate Mortgage (ARM) 2 marks
b) Foreclosure 2 marks
c) A real estate broker 2 marks
d) A real estate dealer 2 marks
e) Real Estate Investment Trusts (REIT) 6 marks
iii. From real estate perspective discuss a Zero interest Mortgage (Z.I.Ms). 10 marks
Question 02 (Total 20 marks)
i. Mortgage market is a complex financial environment of many players. Give a critical view of any 5
players in the primary market in this sector. 10 marks
ii. Assume that an investor has Ksh.2, 500, 000 and would like to invest in a variable – rate – payment mortgage
at 8.5 percent original interest rate, with a 30 year term and monthly payments. In the contract, the interest rate
is meant to be adjusted at the end of each year and the rate increases at 0.50 percent per year.
Estimate the monthly payments for the first, second and the third years of the loan. 10 marks
Question 03 (Total 20 marks)
i. Currently, there are many developments in the Real Estate Industry especially in the financial issues. Discuss
any 5 recent developments in this industry. 10 marks
ii. Describe any 3 reasons of syndication 6 marks
ii. Give a critical analysis of the phrase “real estate syndication.” 4 marks
Question 04 (Total marks 20)
i) Despite the fact that most of the Kenyan population lives in temporary structures, it is still difficult for the
low and middle income earners to access the mortgage facilities in the real estate market.
Describe any 6 factors that could have led to this exclusion. 12 marks
ii. Use the following data to illustrate the buying-down of a mortgage loan.
Given is a situation where a borrower wants to buy-down a newly build one bed-roomed flat, putting
down an amount of 40,000 KES cash and financing the remaining 60,000 KES with a 30 year loan.
Assume that the current market rate of interest is 15 percent. Suppose however, that the developer
offers to buy-down the interest rate to 13 percent for the first 3 years of the loan.
Estimate the monthly payment for the first 3 years and the 4th to 30th year of the loan. 8 marks
Question 05 (Total marks 20)
i. Give a detailed description of Mortgage Finance Industry Structure in Kenya 10 marks
ii. Briefly describe the trend of the current Kenyan Mortgage Finance Institutions. 10 marks
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