Zoom LP (CTA manager, founded by a loose bunch of futures traders distributed across North America and East Asia) moonlights as a RE developer and launches a separate entity, Zoom Realty. Zoom Realty owns a portfolio of real estate with the following assets valuation scenarios 5yr forward: 2x prob=35% prob=15% Flat prob=0% -10% prob=25% -50% prob=20% -70% prob=5% 1.5x O Zoom Realty's servicing costs: 125bps p.a. 5yr Treasury Note yield is 1.1% 5yr AAA corporate spread is 10bps 1. What is Zoom Realty's ROA (ignoring interest)? 2. Zoom Realty finances its debt at LTV=80 (4x leverage) by... a. issuing a single 5yr bond. What does it yield? b. issuing a Senior Secured (SS) and a Junior (J) in equal amounts. What do they yield? 3. What are Zoom Realty's ROE and WACC ... a. Assuming a single Syr bond? b. Assuming SS and I tranches 4. Zoom LP's aggressive management team is getting a hang of how leverage can boost equity returns: a. First, they refinance Zoom Realty's portfolio to LTV = 90%. What is ROE now? b. Then, getting high on leverage, they go LTV = 97.5%. What is ROE now? Zoom LP (CTA manager, founded by a loose bunch of futures traders distributed across North America and East Asia) moonlights as a RE developer and launches a separate entity, Zoom Realty. Zoom Realty owns a portfolio of real estate with the following assets valuation scenarios 5yr forward: 2x prob=35% prob=15% Flat prob=0% -10% prob=25% -50% prob=20% -70% prob=5% 1.5x O Zoom Realty's servicing costs: 125bps p.a. 5yr Treasury Note yield is 1.1% 5yr AAA corporate spread is 10bps 1. What is Zoom Realty's ROA (ignoring interest)? 2. Zoom Realty finances its debt at LTV=80 (4x leverage) by... a. issuing a single 5yr bond. What does it yield? b. issuing a Senior Secured (SS) and a Junior (J) in equal amounts. What do they yield? 3. What are Zoom Realty's ROE and WACC ... a. Assuming a single Syr bond? b. Assuming SS and I tranches 4. Zoom LP's aggressive management team is getting a hang of how leverage can boost equity returns: a. First, they refinance Zoom Realty's portfolio to LTV = 90%. What is ROE now? b. Then, getting high on leverage, they go LTV = 97.5%. What is ROE now