Which example best describes use of positive leverage? Purchasing a $1,000,000 investment property using both equity...

Which example best describes use of positive leverage?

		Purchasing a $1,000,000 investment property using both equity of 250K and loan of 750K, then earning a 25% return on equity.
		Purchasing four 250K investment properties using only equity, then earning a 30% return on equity.
		Purchasing a $1,000,000 investment property using both equity of 250K and loan of 750K, then earning a 10% return on equity.
		Purchasing a $1,000,000 investment property using own equity, then earning a 10% return on equity.

Solutions

Expert Solution

The correct answer is the first one. Positive leverage is when you borrow at a lower rate and earn higher rate from the investment. So when they invested 750K of loan and earned a higher rate of 25%, so that is positive leverage.

jeff jeffy answered 1 year ago

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