Hedge Fund ROE

A hedge fund relies on a 3-to-1 leverage ratio to enhance the returns of its investment strategy. The strategy is forecasted to earn a 7% return on assets in the next year. In addition, the fund will pay 2% interest on any debt borrowed to leverage its returns. Calculate the fund’s expected ROE.

Select one:

a. 7.2%

b. 17.2%

c. 4.4% d. 17.0%

id say 17

7*3 - 2*2