An investor borrows 20% of the funds to buy a stock at a price of $100. If the price falls to 50, his or her effective rate of return is

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The investor borrows 20% of the funds, meaning they use 80% of their own money and 20% borrowed money. If the stock price falls from $100 to $50, it loses 50% of its value. For the investor, the loss is on the total $100, but since they only used 80% of their own money, the effective loss is greater when calculated on their own investment. The calculation is: (50% loss on $100) / 80% = 62.5% loss on the investor's own money, not including borrowing costs.

An Investor Borrows 20% of the Funds to Buy a Stock