A Question About Leverage, from anonymous
I am re-reading something about Long Term Capital Management. The way they added leverage intrigues me. It says that without leverage their annual return on asset would be something like 2.5%, but by adding leverage, they got it to 46%. So, the borrowed money had to charge much lower than 2.5% interests. How could they always easily find that low cost loans in the 90's?
Comments
bobby lemon on August 25, 2015 12:27 pm
In your leverage question you state ‘So, the borrowed money had to charge much lower than 2.5% interests.’
This is a fundamentally flawed conclusion. To understand the way leverage works in general I think the easiest thing to Google is: how does leverage work and how does leverage work with options.
There are many highly complex issues with LTCM. These Google searches will just be the starting point in your journey. Glad to help.