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Effect of leverage with floating rate debt

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Question: (Effect of Leverage with Floating Rate Debt) Consider the case of (riskless from a default perspective) variable or floating rate debt. Show that the volatility of the equity return to a property investment financed with floating rate debt could be less than the volatility of the equity return if the same property was financed with the same amount of fixed-rate debt. Derive and interpret the conditions under which this can happen.

Reference no: EM131734416

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