Over time, an investor making principal and interest loan repayments on an investment using borrowed funds which is increasing in value would expect their gearing ratio to:

Question

Quizplus · Accepted Answer

As the investment is increasing in value, the investor is effectively making a profit. By using borrowed funds to make repayments, they are increasing their gearing ratio. However, as the investment value continues to increase, the gearing ratio will decrease as the value of the investment outweighs the outstanding loan amount. Therefore, the gearing ratio would decrease over time.

Over Time, an Investor Making Principal and Interest Loan Repayments