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NewBridge Capital, an investment bank, has borrowed $48mn in short-term funds to finance 80% of its investment in mortgage-backed securities. The remainder was financed out
NewBridge Capital, an investment bank, has borrowed $48mn in short-term funds to finance 80% of its investment in mortgage-backed securities. The remainder was financed out of the banks equity. Assuming that the value of the mortgage-backed securities decreases by 10% during the year after they are purchased, what is the banks return on its equity investment?
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