Assume that Michaela purchases $12,000 worth of a stock.To do so she uses $2,000 of her own money and borrows the remaining $10,000 at an 8.0 percent interest rate.If the stock's value increases by 20 percent in one year and she sells the stock at that time, what is her rate of return?

Question

Quizplus · Accepted Answer

The stock's value increases by 20%, so it becomes $14,400. After repaying the $10,000 loan plus $800 interest, Michaela has $3,600 left. Her initial investment was $2,000, so her profit is $1,600. The rate of return is $1,600/$2,000 = 80%.

Assume That Michaela Purchases $12,000 Worth of a Stock