#1. Consider an investment company that has leverage (debt to equity) of 20 times, asset yield...

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#1. Consider an investment company that has leverage (debt to equity) of 20 times, asset yield of 3% and cost of funds of 1%, what is the pre-tax ROE? Suppose leverage is reduced to 10 times, what yield is required to obtain the same pre-tax ROE as before the reduction in leverage? Assume overhead cost, other income and expected losses are zero. #1. Consider an investment company that has leverage (debt to equity) of 20 times, asset yield of 3% and cost of funds of 1%, what is the pre-tax ROE? Suppose leverage is reduced to 10 times, what yield is required to obtain the same pre-tax ROE as before the reduction in leverage? Assume overhead cost, other income and expected losses are zero.