Question

1.

Suppose assets are 1000 and liabilities are 900. The expected rate of return on assets is 5% and the rate of interest on liabilities is 3%. What is the expected rate of return on equity?

Group of answer choices

a)2%

b)4%

c)16%

d)23%

2.

Suppose the expected rate of return on assets is 7% and the interest rate on liabilities is 4%. How large does leverage have to be to give you an expected return on equity of 16%?

Group of answer choices

a)2

B)4

C)6

D)8

Answer 1