MakeNu Mortgage Company is offering a new mortgage instrument called the Stable Mortgage. This mortgage is composed
of both a fixed rate and an adjustable rate component. Mrs. Maria Perez is interested in financing a property, which costs
$100,000, and is to be financed by Stable Home Mortgages (SHM) on the following terms:
The SHM requires a 5% down payment, costs the borrower 2 discount points, and allows 75% of the mortgage to be fixed
and 25% to be adjustable. The fixed portion of the loan is for 30 years at an annual interest rate of 10.5%. With neither
interest rate cap nor payment cap, the adjustable portion is also for 30 years with the following terms:
Initial interest rate = 9%
Index = one-year Treasuries
Payments reset each year
Margin = 2%
Interest rate cap = None
Payment cap = None
The projected one-year U. S. Treasury-bill index, to which the ARM is tied, is as follows:
(BOY) 2 = 10%
(BOY) 3 = 11%
(BOY) 4 = 8%
(BOY) 5 = 12%
(a) Calculate Mrs. Perez’s total monthly payment s and end of the year loan balances for the first five years.
(b) Calculate the lender’s yield, assuming Mrs. Perez repays the loan after five-years

Problem 2 (40 marks)
ABC Residential Investors, LLP, is considering the purchase of a 120-unit apartment complex in Steel City, Pennsylvania. A
market study of the area reveals that an average rental of $600 per month per unit could be realized in the appropriate market
area. During the last six months, two very comparable apartment complexes have been sold in the same market area. The
Oaks, a 140-unit project, sold for $9 million. Its rental schedule indicates that the average rent per unit is $550 per month.
Palms, a 90-unit complex, is presently renting units at $650 per month, and its selling price was $6.6 million. The mix of
number of bedrooms and sizes of units for both complexes is very similar to that of the subject property, and both appear to
have normal vacancy rates of about 10% annually. All rents are net as tenants pay all utilities and expenses.
(a) What is the economic rationale for the cost approach? Under what conditions would the cost approach tend to give the
best value estimate?
(b) What is the economic rationale for the sales comparison approach? What information is necessary to use this approach?
(c) Based on the data provided here, how would an appraiser establish an estimate of value?
(d) What other information would be desirable in reaching a conclusion about the probable value for the property?

Problem 3 (20 marks)
In the perspective of the Hong Kong market:
(a) Relationship between business cycle and real estate cycle
(b) Describe the real estate cycle in Hong Kong over the past 20 years.
(c) What are the major characteristic of the real estate cycle
(d) What are the key roles of the government