1. You are considering the purchase of an apartment building with the following information: Purchase price Expected year 1 NOI Expected annual NOI growth Expected Exit Cap Rate Holding Period $12,500,000 $1,000,000 4% 8.5% 3 years Solve for each of the following: Initial (going in) cap rate Expected sales price end of year 3 Net Present Value at 9% Discount Rate IRR Would you buy this asset for $12,500,000? Why or why not? 2. An office building has the following investment characteristics: $2,100,000 $2,200,000 $2,300,000 $2,400,000 Year 1 NOI Year 2 NOI Year 3 NOI Year 4 NOI Initial (going in) cap rate Loan Principal 7% $18,000,000 Interest rate 5% Amortization 30 years Exit cap rate Holding period 8% 3 years Solve for each of the following: Purchase price Loan to value ratio Annual debt service Debt service coverage ratio for Loan balance at the end of year 3 Equity IRR year 1

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing t…