Assume an asset costs $100.The asset will return $5.If you purchased the asset entirely with your own money the rate of return would be ________.If you purchased the asset $10 of your own money and $90 of borrowed money the rate of return would be ________.

Question

Quizplus · Accepted Answer

The rate of return when purchasing with your own money is calculated as ($5 return / $100 cost) * 100% = 5%. When leveraging with $10 of your own money and $90 borrowed, the return on your own investment is still $5, but now it's based on your $10 investment, making it ($5 return / $10 investment) * 100% = 50%.

Assume an Asset Costs $100