I invest $100 in a stock and borrow 90 percent of the $100 at 10 percent. The stock price rises by 20 percent. The rate of return on my investment is:

Question

Quizplus · Accepted Answer

The rate of return on the investment is 110 percent. The initial investment was $100, and the stock price rose by 20 percent, resulting in a gain of $20. The investor borrowed 90 percent of the initial investment, or $90, at 10 percent interest, resulting in an interest expense of $9. The net gain on the investment is $20 - $9 = $11, which represents a 110 percent return on the initial investment of $100.

I Invest $100 in a Stock and Borrow 90 Percent