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Bob buys a property with an 80% LTV interest only mortgage at an annual rate of 6%, with annual compounding and annual payments. Bob's annual cap rate for the first year is 5%. Which of the following is true about Bob's Return on Equity (ROE) for the first year? (A) ROE is the same as it would have been if he didn't use leverage (B) (C) (D) There is not enough information to answer this question ROE is higher than if he didn't use leverage ROE is lower than if he didn't use leverage

Bob buys a property with an 80% LTV interest only mortgage at an annual rate of 6%, with annual compounding and annual payments. Bob's annual cap rate for the first year is 5%. Which of the following is true about Bob's Return on Equity (ROE) for the first year? (A) ROE is the same as it would have been if he didn't use leverage (B) (C) (D) There is not enough information to answer this question ROE is higher than if he didn't use leverage ROE is lower than if he didn't use leverage

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Bob buys a property with an 80% LTV interest only mortgage at an annual rate of 6%, with annual compounding and annual payments. Bob's annual cap rate for the first year is 5%. Which of the following is true about Bob's Return on Equity (ROE) for the first year? (A) ROE is the same as it would have been if he didn't use leverage (B) There is not enough information to answer this question (C) ROE is higher than if he didn't use leverage (D) ROE is lower than if he didn't use leverage
Transcribed Image Text:Bob buys a property with an 80% LTV interest only mortgage at an annual rate of 6%, with annual compounding and annual payments. Bob's annual cap rate for the first year is 5%. Which of the following is true about Bob's Return on Equity (ROE) for the first year? (A) ROE is the same as it would have been if he didn't use leverage (B) There is not enough information to answer this question (C) ROE is higher than if he didn't use leverage (D) ROE is lower than if he didn't use leverage
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