President Trump’s net worth as of December 2015 was reported to be $10 Billion dollars. In December of 1976, the New York Times reported his net worth at $200 Million. According to Mr. Trump, this increase in wealth was generated by investments in commercial real estate. Over this same time period, the “FTSE NAREIT All Equity REITs Index”, an index that tracks the performance of commercial real estate, averaged 13.0% total geometric return per year. Assume that the estimates of net worth are measured as of December 31st and that Mr. Trump’s investments have the same risk and leverage as REITs.

a) In order to tell whether Mr. Trump is a good investor, we must assume something about his spending. Clearly, he cannot reinvest all his wealth each period (the man’s got to eat). How much in dividends would he have to take out of his portfolio (as a percent of his wealth) each year over this period for you to conclude he is a good investor?

b) In words, how would your answer change if you learned that Mr. Trump’s investments were levered at 69% while REITs were levered at 36% (No calculations please)