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Before-tax expected returns

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A certain real estate limited partnership (LP) advertises that it has a target of matching the stock market in total return for its limited partner investors, before taxes. (Suppose that the stock market expected return is 9%.) The conservative office and warehouse properties that the partnership plans to acquire typically have before-tax expected returns of about 6%. Assuming mortgage debt at the rate of 3%, what loan-to-value ratio must the LP plan to maintain in its property investments in order to have a good chance of meeting its stated target?

Reference no: EM133121897

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