Question

A property is financed with an 85% LTV at 10% interest over 25 years. What would the estimated BTIRRE be on equity given that the BTIRRP is 10.75%?

a. ​10.1%
b. ​10.4%
c. ​15.0%
d. ​13.2%

Answer 1

c. ​15.0%

Step-by-step 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%