Equity Participation without Equity: An Analysis of Hope Notes


The paper examines the case of splitting a defaulted mortgage loan on a commercial property into an A note that earns interest and a B note that earns a return only if the value of the property increases. The B note is known as a “hope note.” The paper shows that the current methods for structuring such a deal often produce a B note that is worthless. A state-preference model is employed.

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J. McDonald, "Equity Participation without Equity: An Analysis of Hope Notes," Modern Economy, Vol. 4 No. 5, 2013, pp. 370-374. doi: 10.4236/me.2013.45038.

Conflicts of Interest

The authors declare no conflicts of interest.


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