2010 mock question 49 2010, question, return, equity

morebeans

Expected asset return 7.40 percent
Average portfolio leverage 40 percent
Repo rate 4.25 percent
Calculate portfolio return
Soln: 7.40%+40/100(7.40%+4.25%)=8.66%
Why have they taken 40/100? Shouldn’t it be 40/60. If our leverage is 40% then equity should be 60% right?

pennyless

in this calculation the leverage is Borrowed/Equity, so 40% = 40 borrowed / 100 equity

trogulj

for every 100 you are borrowing 40 so total 140

prav_Cfa7

can somebody please email me the 2010 and 2011 mocks at 2012passme@gmail.com
thanks

Londonrocks

Thanks all but how do we know whether we have to take 40% of the equity or 40% of the capital? The question just said it is 40% leverage. It did not specifically mention that it is 40% of equity

comp_sci_kid

I know… that question got me too. I went with 40% leverage to me means 40% borrowed, 60% not borrowed. 100% total.