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Dvinal [7]
3 years ago
9

A property is financed with an 85% LTV at 10% interest over 25 years. What would the estimated BTIRRE be on equity given that th

e BTIRRP is 10.75%?
a. ​10.1%
b. ​10.4%
c. ​15.0%
d. ​13.2%
Business
1 answer:
Fofino [41]3 years ago
7 0

Answer:

c. ​15.0%

Explanation:

First we need to calculate the Debt to equity ratio

Debt to equity ratio = Debt / Equity

Debt to equity ratio = 85% / 15% = 5.66667

Now calculate BTIRRE  using following formula

BTIRRE  = BTIRRP + ( BTIRRP - BTIRRD ) x Debt to equity ratio

Where

BTIRRP = 10.75%

BTIRRD = 10%

Placing values in the formula

BTIRRE  = 10.75% + ( 10.75% - 10.00% ) x 5.66667

BTIRRE  = 10.75% + 4.25%

BTIRRE  = 15.00%

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