To complete this final examination you will need to answer the 15 questions listed below. The first four questions are to be answered in Excel using the associated tabs included in the “Final Exam REE6045 – Excel file” that is provided to you. Questions 5-15 are to be answered on a Word document in the order in which they appear.
This final exam is due on or before March 3rd at 12 p.m. EST. By that time you should submit an electronic copy (via email) of your assignment. If you turn your assignment late, 10% will be deducted from your grade for every calendar-day delay.
All the work on this final exam must be 100% your own work. You are not allowed to discuss the exam with any of your classmates or any other person prior to the deadline. A failing grade in the course will automatically be assign to a student that seeks help from another person while working on the exam. You are allowed, however, to use the textbook, classroom notes, review lectures and use any “non-interactive” websites while working on the exam.
(8 points, 4+4) Consider the “buy vs. rent” Excel spreadsheet provided to you in tab Q1.
a. According to the assumptions made in that spreadsheet should the average individual buy or rent? Briefly explain in 1 sentence.
b. Alter the “buy vs. rent” Excel spreadsheet so that it shows the minimum rate of price appreciation the homeowner must receive in order to be better off buying than renting. Highlight in yellow the cell that includes this price appreciation rate.
(8 points, 4+4) Consider the levered DCF model provided to you in tab Q2 of the Excel spreadsheet.
Calculate the maximum price that an investors with the assumptions made in
the model should be willing to pay for that property. Show this maximum
price in cell C2.
If you expect a general increase in the risk premium for real estate
investments over the next 8 years, how would this affect the expected levered return on this property? Explain in 2-3 sentences and include your explanation in the yellow box of tab Q2.
(8 points, 4+2+2) Using the headers in tab Q3 of the Excel spreadsheet and the input values included in the green “box”:
a. Create a monthly amortization schedule for a fixed rate 15-year mortgage.
Make sure that any value that the user (me in this case) changes in the green “box” will be reflected in your amortization schedule. Your monthly payment calculation should be included in cell J5 and should also change with any changes to the values in the green “box”.
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