From CFAI text: “the ratio of the property’s purchase price to the amount of the mortgage is called the LTV” this is backwards, no? the rest of the paragraph seems to describe it the other way around…
LTV is the loan amount divided by the property’s purchase price or appraisal value
The quote in that context is backwards, I would double check the verbiage on the page where you found that CFAI text. LTV is a pretty straightforward concept. It’s the percentage of the value financed with a loan.
A $500,000 house that’s bought with a $200,000 mortgage has an LTV of 40% ( Loan (200,000) / Value (500,000) = .4).
The lower the LTV the lower the probability of default and the lower the expected loss.
the quote is a direct exact quote other than using the entire term instead of LTV at the end. everything else in the paragraph however is correctly describing the proper ratio and it’s relationships. but yeah the opening sentence and definition is wrong and caused me about 20 minutes or so trying to figure how the relationships explained actually fit lol. oh well.