Sample 1 - Leverage Return return, equation, question

LBriscoe

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?

Darien

40/60 would give you a leverage of 66.67% as opposed to 40%.

Analyze_This

Figured as much.
This is why the "experts" recommend Friday as a rest day.