1. Financial Risk & Leverage
Please answer the following questions on financial leverage, value and return:
Define financial risk.
Should the investor select the origination LTV that maximizes the expected return on equity? Explain why or why not.
Distinguish between recourse and nonrecourse financing. Give an example of each.
2. Owners, Tenants & Leases
What factors tend to make both owners and tenants prefer longer-term leases, all else being equal? Why might a tenant prefer a lease with a higher effective rent than an alternative leases with a lower effective rent?