Assume a stock is initially priced at $50, and pays an annual $2 dividend. An investor uses cash to pay $25 a share and borrows the remaining funds at a 12 percent annual interest. What is the return if the investor sells the stock for $55 at the end of one year?
A)50 percent
B)30 percent
C)10 percent
D)16 percent
E)8 percent

Question

Quizplus · Accepted Answer

The return is calculated as the total gain divided by the total investment. The total gain is the sale price minus the purchase price plus the dividends received, which is $55 - $25 + $2 = $32. The total investment is the purchase price plus the borrowed amount, which is $25 + $25 = $50. Therefore, the return is $32 / $50 = 0.64, or 64%.

Assume a Stock Is Initially Priced at $50, and Pays