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An investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share, and in 1 year the investor sells the stock for $28. The investor's rate of return was ____.

Respuesta :

Answer:

The investor's rate of return is 17%

Explanation:

The total amount invested was $10000,which implied 400shares($10000/25)

The investment was realized for $28 each and total proceeds is $28*400 i.e $11200

The investor has to pay interest of 7% on the $5000 borrowed

7%*$5000=$350

When the interest is taken away from the proceeds,$10,850 is left($11200-$350)

Hence, rate of return on investment is the return earned $850($10850-$10000) divided the initial cash provided by the investor($5000)

i.e $850/$5000*100=17%

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