a. Assuming riskless debt, if the loan-to-value ratio is 80% , approximately how much more risk...

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a. Assuming riskless debt, if the loan-to-value ratio is 80% , approximately how much more risk will there be in the equity return than if the LTV ratio were 60% ? Put another way: If the return to equity can vary per year within a range of ±20% with a 60% LTV ratio, then within what range can it vary with an 80% LTV ratio? b. How much larger should the market's required risk premium be in the required return to equity with 80% debt as compared to 60% debt? a. Assuming riskless debt, if the loan-to-value ratio is 80% , approximately how much more risk will there be in the equity return than if the LTV ratio were 60% ? Put another way: If the return to equity can vary per year within a range of ±20% with a 60% LTV ratio, then within what range can it vary with an 80% LTV ratio? b. How much larger should the market's required risk premium be in the required return to equity with 80% debt as compared to 60% debt?

Answer rating: 100% (QA)

a To assess the increased risk in equity return with an 80 loantovalue LTV ratio compared to a 60 LT... View the full answer