A property is neutrally geared now with an LTV of 50%. If the investor decides to increase leverage with the same interest rate of loan, which of the following is correct about income ROE (Y ROE ), capital gain ROE (G ROE ), and total ROE (Total ROE )? Assume the capital gain is positive and ignore tax.

Question

Answer

Y ROE  and Total ROE  decrease, G ROE  increases

Answer

Y ROE , G ROE  and Total ROE  decrease

Answer

Y ROE  decreases, G ROE  and Total ROE  increase

Answer

Y ROE  is unchanged, G ROE  and Total ROE  increase

Answer

Y ROE , G ROE  and Total ROE  increase

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A property is neutrally geared now with an LTV of 50%. If the investor decides t...

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