Posted by Stu on June 03, 2005 at 10:41:16:
Your #'s look right to me. First, smaller #'s always look less impressive. Take a look at a 21% spread on a 112,000 note as opposed to an 11.200 and see how it looks then. I think what you are missing is the fact that since you have borrowed the full 7200 to purchase the note, your yield on your $$ (your cash that is) isnt 33%, its infinite due to leverage and having none of your own $$ in the deal like when buying a home no $$ down.
33% would be the yield on your cash if you came out of pocket for your 7200. Since I was bored I decided to figure what would happen if you used $1000 of your own and borrowed 6200 at 12%. your yield then on your cash is an impressive 55.7% and thats the power of leverage, a 66% increase in your yield.
Hope this helps,