RI = (ROE-r) x B .. ?

CFA Level II
#1

Ok RI = E - (r x B) makes total sense, i.e. earnings - [cost of equity x equity] However, what about ROE-r x B? what does this mean? any input is much appreciated.

#2

same thing…just rearrange the formula E = ROE *BV Thus RI = (ROE*BV) - (R*BV) RI = (ROE-R) * BV

#3

ROE * B_0 = E_1 So RI_1 = (ROE - r ) x B_0

#4

Yep, that’s right. Remember, E = roe*b, a little algebra and distribution and wala! E - (r*b) = (roe - r)*b.

#5

thanks.

#6

Hey Usif, about a week ago you posted a question regarding social regulation. I remember one of the answers was restaurants and how they need social regulation? What was the answer to that? I tried searching and couldn’t find it. TIA.

#7

I can’t recall buddy… but it must have been related to the industry analysis topic. i got that question from SchweserPro Q-Bank… I’m sure you’ll find it if you solve the topic related questions… Sorry!