Assume Joe invests a total of $10,000 in a company-$5,000 of which is his own money and $5,000 of which he borrowed at a 10 percent interest rate.If the company's stock value increases by 20 percent in one year at which time Joe sells his shares of the stock, what is Joe's rate of return on his investment?

Question

Quizplus · Accepted Answer

Joe invests a total of 10,000 dollars in the company, out of which $5,000 is his own money and $5,000 is borrowed at a 10 percent rate of interest. So, Joe pays an additional 10% * $5,000 = $500 as interest.

Now, the company's stock value increases by 20 percent, which means Joe's investment of $10,000 grows to $12,000 (20% of $10,000).

So, Joe's profit is $12,000 - $10,500 = $1,500.

His rate of return on investment is calculated as (Profit/Total Investment) x 100.

Substituting the values, we get:
(1,500/10,000) x 100 = 15%

Therefore, Joe's rate of return on his investment is 15 percent, which is Choice B.

Assume Joe Invests a Total of $10,000 in a Company-$5,000