Posted by Kurt Schultz on April 17, 2004 at 18:03:56:
In Reply to: Re: Are interest rate movements really irrelevant to private notes? posted by Rich[FL] on March 30, 2004 at 13:38:20:
"If you're buying notes at an 18% yield, and you're paying 9% on the financing, you're making 9% return on the note, but it's an infinite return on your investment since you have none of your money at risk. If you buy notes at 18% yield and you're paying 15% for the financing, you're making 3% return on the note, but the return on your investment is still infinite."
I'm really tired of hearing this. The statement is just wrong. The accurate statement is "...the return on your investment is (mathematically) undefined."
If the return were in fact infinite, a single deal would give the deal-doer all of the money in the world and them some (which is an obvious absurdity).
We need a better term for this situation - one that is accurate.
Kurt Schultz