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john
· 9 months ago
I like ur leveraged bits. One would never think of a reason not to be so leveraged.
lorenzo
· 1 week ago
I think you chose not the easiest way to explain the idea of negative leverage. It would be much easier to compare RoA/Cap Rate (10% and 8,5% in your two scenarios) with the effective interest rate paid over the period. In the first case is 8,48% (which is lower than 10%, so the levarage is positive) while in the second case the int rate paid is 8,67%, which is higher than return on asset, then the negative leverage. The formula is RoE = RoA +(RoA-interest rate)*(Debt/Equity)
To calculate the effective interest rate you just need the usual interest amortization tables or calculate the total annual debt payment. Hope this helps.
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RoE = RoA +(RoA-interest rate)*(Debt/Equity)
To calculate the effective interest rate you just need the usual interest amortization tables or calculate the total annual debt payment. Hope this helps.