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 8%. Which of the following is true about Bob's Return on Equity (ROE) for the first year? OA. ROE is the same as it would have been if he didn't use leverage OB. There is not enough information to answer this question OC. ROE is lower than if he didn't use leverage D. ROE is higher 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 8%. Which of the following is true about Bob's Return on Equity (ROE) for the first year? OA. ROE is the same as it would have been if he didn't use leverage OB. There is not enough information to answer this question OC. ROE is lower than if he didn't use leverage D. ROE is higher than if he didn't use leverage

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

Problem 1PS

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Bob buys a property that costs $1,000,000. The property is projected to generate NOI as follows: Year NOI 1 $100,000 2 $105,000 3 $110,000 Bob will own the property for two years. Bob will sell the property at the end of year 2 at a cap rate that is 250 basis points lower than the cap rate at which he bought the property. Assume Bob finances his purchase with a 50% LTV Fixed Rate IO loan at an annual rate of 5% with annual compounding and annual payments. What is Bob’s annualized IRR for the investment in question? A. 83.54% B. 52.38% C. 78.93% D. 79.71%
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