So in the question with the repo rates etc…they state a) Average client portfolio had a return of 7.40%, they had a 40% leverage ratio and the repo rate was 4.25% Their guideline answer is 7.40% + [40/100 * (7.40 - 4.25)] = 8.66% but isn’t the equation Ri + (D/E *(Ri - Rd) that would give us 7.40% + [40/60 * (7.40 - 4.25)] = 9.5% am i misinterpreting the leverage ratio?
40/60 would give you a leverage of 66.67% as opposed to 40%.
Leverage ratio is Debt/Equity That means the have 40 in debt, and 100 in equity for a total investment of 140
yeah…clearly my brain’s were stufffed with something else at the time… now that I think about it…i was trying to do this in a rush…read leverage ratio as % of debt in total assets… thanks
Figured as much. This is why the “experts” recommend Friday as a rest day.
I may not get this right in a real exam.