Question
John Dayton is the manager of a single-strategy hedge fund. The fund's historical annual ROA is 6% and its ROE is 18%. However, Dayton forecasts
John Dayton is the manager of a single-strategy hedge fund. The fund's historical annual ROA is 6% and its ROE is 18%. However, Dayton forecasts that changing market conditions will cause its ROA in the next year to decline to 3.5%. Assuming an intense rate of 3%, what level of leverage should Dayton employ in order to maintain an ROE of 18?
a. 5 to 1.
b. 9 to 1.
c. 30 to 1.
d. 36 to 1.
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Fundamentals of Investments Valuation and Management
Authors: Bradford D. Jordan, Thomas W. Miller
5th edition
978-007728329, 9780073382357, 0077283295, 73382353, 978-0077283292
