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Question 1 of 29
A plot of land can be improved at a construction cost of $500,000 if the economy improves. In this case, the value
of the improved property will be $1.2 million. If the economy declines, the construction cost drops to $200,000 and
the improved property value drops to $400,000. If comparable improved properties currently sell for $900,000 and
the risk-free rate is 0%, which of the following represents the risk-neutral probability of the economy declining?
r A 25%
r B. 37.5%
r C. 50%
r D. 62.5%
Question 2 of 29
A university endowment makes a small allocation to a timberland investment. Which of the following best represents a
drawback of this investment?
r A fixed timber supply
r B. timber's low correlation with traditional assets
r C. long growth cycle
r D. timber's variable harvesting schedule
Question 3 of 29
All else equal, which of the following natural resource development projects should be carried out first, based on the
low-hanging-fruit principle?
r A extracting oil in a region that has OPEC-imposed restrictions on production
r B. mining coal in a region that requires exploration permits
r C. mining copper in a region that is subject to rigorous environmental review
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Question 4 of 29
The global demand for agricultural products is driven by which of the following macro factors?
I. Changing diets in emerging markets
II. Global population growth
III. Lower incomes in developing markets
IV. Increased use of biofuels
r A II, Ill, and IVonly
r B. I, 11, and IVonly
r C. I, 11, 111, and IV
r D. II and IVonly
Question 5 of 29
Pancho Morales is looking to purchase farmland that maximizes the multiple purpose value associated with the
farmland. Given that each property he is considering can grow two different crops, which of the following farmland
characteristics should Pancho select?
r A The profitability of each crop is highly certain and the two crops are not highly positively correlated.
r B. The profitability of each crop is highly uncertain and the two crops are positively correlated.
r C. The profitability of each crop is highly certain and the two crops are positively correlated.
r D. The profitability of each crop is highly uncertain and the two crops are not highly positively correlated.
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Question 6 of 29
Use the information below about a farmland investment to answer the question that follows.
900 000
Annual revenue
Annual real estate tax 60 000
Annual insurance cost 40 000
Which of the following comes closest to the farmland investment's cap rate?
r A 8.4%
r B. 12.4%
r C. 16.4%
r D. 20.4%
Question 7 of 29
A farmland has annual revenues of $50,000, with annual taxes of $7,500. If the farmland owner expects the cap
rate to be 8%, which of the following most closely represents the value of the farmland property?
r A $340,000
r B. $531,250
r C. $617,500
r D. $625,000
Question 8 of 29
Which of the following best describes the type of undeveloped land on which construction has begun but is not yet
ready for homebuilding?
r A unfinished lot
r B. paper lot
r C. entitled lot
r D. blue top lot
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Question 9 of 29
Which of the following types of farmland comprise the NCREIF Farmland Index?
r A vegetable crop land and industrial crop land
r B. row crop land and industrial crop land
r C. row crop land and permanent crop land
r D. vegetable crop land and permanent crop land
Question 10 of 29
If the economy improves, a plot of land can be improved at a construction cost of $200,000 and the value of the
improved property will become $450,000. However, if the economy declines, the construction cost drops to $50,000
and the improved property value drops to $80,000. If comparable improved properties currently sell for $300,000 and
the risk-free rate is 0%, which of the following comes closest to the value of the land as a call option?
r A $160,900
r B. $180,700
r C. $220,450
r D. $300,150
Question 11 of 29
An undeveloped lot of land has a 20% chance of being developed. If development occurs, then the return on the land
is expected to be 45%. If it remains undeveloped, the return is expected to be -5%. Which of the following is the
expected return on the lot of land?
r A 2%
r B. 5%
r C. 13%
r D. 14%
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Question 12 of 29
The asset volatility used to price an exchange option is driven by which of the following factors?
I. Volatility of delivered asset
II. Correlation between volatilities of delivered and received assets
III. Strike price of received asset
r A I and 111 only
r B. ll only
r C. I and II only
r D. l only
Question 13 of 29
A large, appraised real estate property is estimated to have an annual volatility of returns of 9% and pair-wise
correlations of returns with five other similar properties of 0.66. Which of the following best describes this property's
return characteristics?
The market-based return volatility is less than 9%, market-based return correlations are less than 0.66,
r A
and appraised returns are not lagged relative to market returns.
The market-based return volatility is less than 9%, market-based return correlations are greater than
r B. 0.66, and appraised returns are lagged relative to market returns.
The market-based return volatility is greater than 9%, market-based return correlations are greater than
r C.
0.66, and appraised returns are lagged relative to market returns.
The market-based return volatility is greater than 9%, market-based return correlations are less than
r D.
0.66, and appraised returns are lagged relative to market returns.
Question 14 of 29
An investor has purchased 40 acres of farmland at $3,000 per acre using a loan with a 50% loan-to-value ratio and a
5.4% annual interest rate. The farmland's annual property taxes are $140 per acre and annual insurance costs are
$2,800. Given that the investor receives annual rent of $600 per acre of farmland, which of the following represents
the farmland investment's operating income and net income, respectively?
r A $14,600; $11,600
r B. $14,400; $11,400
r C. $15,600; $12,360
r D. $16,400; $13,160
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Question 15 of 29
Use the payoff diagram of a natural resource development project below to answer the question that follows.
Developed value/cost
Which of the following statements regarding this project is accurate?
I. For values above point P, the time value of the development option is positive.
II. For values above point P, the development option value is greater if the option is exercised immediately.
III. The development option is out-of-money only when horizontal-axis values are less than one.
r A II and Ill only
r B. I, 11, and Ill
r C. ll only
r D. l only
Question 16 of 29
Consider an investment in a vacant lot that is viewed as a call option, the value of which is influenced by a number of
factors related to the development process. Which of the following is FALSE regarding the view of vacant land as a call
option?
r A The relevant volatility is that of the spread between expected sales price and construction costs.
r B. The underlying asset is the vacant lot and building.
r C. The payoff is the sales price of the completed development.
r D. The strike price is the cost of improving or building on the land.
Question 17 of 29
Which of the following is NOT an advantage of an investment in timber?
r A flexible harvest schedule
r B. inflation hedge
r C. non-cyclicality
r D. low correlation with stocks and bonds
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Question 18 of 29
Which of the following quarterly return characteristics applies to timber investments over the past two decades?
r A lower volatility than world equities and large positive kurtosis
r B. large volatility and low Sharpe ratio
r C. no clustering around the mean and small maximum drawdown
r D. markedly negative skewness and excess kurtosis
Question 19 of 29
Roberto Torres is looking to add a farmland investment to his investment portfolio. Which of the following would LEAST
likely be a primary motivation for him?
r A Farmland has a liquid market with efficient prices.
r B. Farmland is generally independent of financial markets.
r C. Farmland serves as an effective hedge against inflation.
Question 20 of 29
A portion of private land in the U.S. state of Wyoming has split estates. Which of the following more accurately
describes the consequence of this in Wyoming?
r A Ownership of the land has different tax liabilities.
r B. The land is passed on to different heirs after the owner's death.
r C. Surface and mineral estates are owned by different parties.
Question 21 of 29
The cap rate used in real estate investment analysis is most similar to which of the following performance measures?
r A return on equity
r B. funds from operations
r C. return on assets
r D. internal rate of return
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Question 22 of 29
Which of the following best describes a Timberland Investment Management Organization (TIMO)?
r A A manufacturing firm that specializes in supplying wood products to homebuilders and developers.
r B. A firm that brokers timberland deals and looks after timber investments for institutional investors.
r C. A publicly-traded real estate investment trust that specializes in timberland investments.
r D. An institutional investor that makes investments in a variety of assets, including timberland.
Question 23 of 29
A farmland owner hires a farmer to manage his land. Since the farmland owner lives far from the land, he is unable to
monitor all of the farmer's activities. As a result, the farmer sometimes gets lazy and does not maximize the potential
value of the crops. This is an example of which of the following?
r A degradation
r B. selection bias
r C. efficiency cost
r D. agency cost
Question 24 of 29
Which of the following is the best possible way to try to achieve a pure play investment in coal?
r A invest in a master limited partnership that primarily owns coal
r B. invest in a coal mine located on public land
r C. buy and store coal
r D. own the stock of a company that invests solely in coal futures contracts
Question 25 of 29
Which of the following is most accurate regarding the difference between an investment in farmland and an
investment in timberland?
r A Farmland acts as a better inflation hedge.
r B. The harvest schedule of farm crops is much more flexible than that of timber.
r C. Farmland is less versatile than timberland.
r D. The value of farmland is more heavily influenced by political risk than the value of timberland.
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Question 26 of 29
Which of the following likely best explains the divergence in performance observed between the NCREIF Property
Index and the NAREIT Index during the global financial crisis?
r A The NCREIF Property Index's volatile prices were largely due to the use of appraisals.
r B. The NAREIT's price volatility is an accurate indicator of the true volatility of the underlying property values.
r C. The NCREIF Property Index's volatile prices declined at the same pace as underlying market prices.
r D. The NAREIT's price volatility was due in part to a contagion effect of the public equity market.
Question 27 of 29
Use the information below to answer questions 27 through 28.
An analyst has been asked to review an investment opportunity in an apartment complex with the following
projections.
Market Value of Property $3,500,000
Mortgage Amount $2,500,000
Equity Investment $1,000,000
Annual Revenues $500,000
Property Taxes $150,000
Insurance $50,000
Interest $125,000
An analyst has been asked to review an investment opportunity in an apartment complex with the following
projections.
Market Value of Property $3,500,000
Mortgage Amount $2,500,000
Equity Investment $1,000,000
Annual Revenues $500,000
Property Taxes $150,000
Insurance $50,000
Interest $125,000
Which of the following comes closest to the investment's return on assets?
r A 8.6%
r B. 17.5%
r C. 21%
r D. 30%
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Question 28 of 29
Use the information below to answer questions 27 through 28.
An analyst has been asked to review an investment opportunity in an apartment complex with the following
projections.
Market Value of Property $3,500,000
Mortgage Amount $2,500,000
Equity Investment $1,000,000
Annual Revenues $500,000
Property Taxes $150,000
Insurance $50,000
Interest $125,000
An analyst has been asked to review an investment opportunity in an apartment complex with the following
projections.
Market Value of Property $3,500,000
Mortgage Amount $2,500,000
Equity Investment $1,000,000
Annual Revenues $500,000
Property Taxes $150,000
Insurance $50,000
Interest $125,000
Which of the following comes closest to the investment's return on equity?
r A 8.6%
r B. 17.5%
r C. 21%
r D. 30%
Question 29 of 29
Which of the following most accurately describes the change in timber ownership in the U.S. resulting from the
dismantling of forest-products companies over the past 30 years?
r A more retail investors
r B. fewer institutional investors
r C. fewer retail investors
r D. more institutional investors
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Answer Sheet
Question# Question ID Your Response Flagged
1 L 1-3.1.2-004 rA rs re ro r
2 L 1-3.1.3-004 rA rs re ro r
3 L 1-3.1.1-004 rA rs re r
4 L1-3.1.4-011 rA rs re ro r
5 L 1-3.1.4-003 rA rs re ro r
6 L 1-3.1.4-015 rA rs re ro r
7 L 1-3.1.4-005 rA rs re ro r
8 L 1-3.1.2-001 rA rs re ro r
9 L 1-3.1.4-012 rA rs re ro r
10 L 1-3.1.2-005 rA rs re ro r
11 L 1-3.1.2-003 rA rs re ro r
12 L 1-3.1.1-003 rA rs re ro r
13 L 1-3.1.5-005 rA rs re ro r
14 L 1-3.1.4-016 rA rs re ro r
15 L 1-3.1.1-005 rA rs re ro r
16 L 1-3.1.2-002 rA rs re ro r
17 L 1-3.1.3-001 rA rs re ro r
18 L 1-3.1.6-001 rA rs re ro r
19 L 1-3.1.4-010 rA rs re r
20 L 1-3.1.1-002 rA rs re r
21 L 1-3.1.4-001 rA rs re ro r
22 L 1-3.1.3-002 rA rs re ro r
23 L 1-3.1.4-006 rA rs re ro r
24 L 1-3.1.1-001 rA rs re ro r
25 L 1-3.1.4-004 rA rs re ro r
26 L 1-3.1.5-003 rA rs re ro r
27 L 1-3.1.4-008 rA rs re ro r
28 L 1-3.1.4-007 rA rs re ro r
29 L 1-3.1.3-003 rA rs re ro r
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