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- 2014-6-28
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R30 : Leverage of bond investment
V4, P108~109
For simplicity :
ROA : Return On Asset [Asset = Equity + Borrowed Funds or Liability)
ROI : Return on Funds Invested (Funds Invested = Equity + Borrowed Funds = Asset)
ROE : Return on Equity (Money owned by the investor/portfolio rather than borrowed)
k : Cost of borrowing
ROB : Return on borrowed funds :
E : Amount Equity
B: Amount of Borrowed Funds
By definition => ROA = ROI and k = ROB
ROE = [(ROA x E + B) - k x B] / E
1. In its definitions on P108
What is the difference between the rF (Return on funds invested) and RP (Portfolio rate
of return) ? Shall the RP is (same as) the Return on Equity (RE) and rF (Return on funds
invested) is the ROA/ROI ? These definitions seem different from my understanding in
common financial / accounting.
2. The "Return on borrowed funds = Return on funds invested - Cost of borrowing" which
is defined on P108 (RB) seems wrong.
In its raised example on the top of P109, E = 100M, B = 50M, thus the funds invested
(the Asset or the Equity + the Liability) is 100M+50M = 150M, then ROA = ROI = 6.5%
and ROE = [ROA x (E + B) - k x B] / E = [6.5x(100+50)- 6.0x50]/100 = 6.75(%).
ROB (6%) is "not" equal to ROI(ROA) - k = 6.5%-6.0% = 0.5% as ROB = k
Am I wrong and CFAI is correct ? Anyone can clarify ? Please ! Thanks ! |
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发表于 2011-7-13 16:25
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