I invest $100 in 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 investor borrowed 90 percent of the $100 at 10 percent, so the interest on the loan is $9. The stock price rises by 20 percent, so the value of the stock is now $120. The investor's profit is $20, so the rate of return is $20/$100 = 110 percent.

I Invest $100 in Stock, and Borrow 90 Percent of the $100