Assume Joe invests a total of $10,000 in a company

Question

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

Quizplus · Accepted Answer

Joe's investment grows to $12,000 ($10,000 + 20% of $10,000). He repays the $5,000 loan plus $500 interest, leaving him with $6,500. His profit is $1,500 ($6,500 - $5,000), which is a 30% return on his initial $5,000 investment.