Calculate ROE

CFA Level I
#1

equity = $1, purchase assets = $3. ROA (return on assts) = 8% Borrow rate = 5% Leverage ratio 3:1 calculate ROE (return on equity)

can you give the explanation for the solution.

#2

ROA = NI / Assets

ROE = NI / Equity = (NI / Assets) × (Assets / Equity)

= ROA × Leverage

= 8% × 3 = 24%

#3

Thanks…

#4

You’re welcome.