Not sure if this has been discussed. I have a question on leverage effect in fixed income. vol 4, page 108. It says “Re=return on equity.” “Re equals the return on funds invested.” This look not intuitive to me, and it’s different what’s in schweser, I think. Can you clarify it? Q29 on 156 uses this concepts. Thanks.
You can source a project using 2 sources: invested capital using your own equity or by borrowing. Re is the return on the capital you (and partners) have invested in the project. I don’t use Schweser, but if it conflicted with the CFA readings then I would go with what CFA says.
This is just trying to separate “Portfolio return” into: (i) the return by just investing your funds; the “return on equity” (ii) the return on borrowing less the cost of borrowing; the “borrowed component” (i) + (ii) is the “Portfolio return” Think attribution.