Assume an asset costs $100.The asset ends up losing $2.If you purchased the asset entirely with your own money the rate of return would be ________.If you purchased the asset with $10 of your own money and $90 of borrowed money, the rate or return would be ________.

Question

Quizplus · Accepted Answer

The rate of return when purchasing with your own money is calculated as (Final Value - Initial Value) / Initial Value * 100 = (-$2 / $100) * 100 = -2%. When leveraging with $10 of your own money, the loss still is $2, but now it's out of your $10 investment, making it (-$2 / $10) * 100 = -20%.

Assume an Asset Costs $100