Answer:
Rate of return = 10.5%
Step-by-step explanation:
Rate of return would be the proportion of the amount invested that is earned as profit. Kindly note the the following :
The amount earned as cash return would be determined as the capital gains less the interest on the loan.
Also, the amount invested would refer to the personal capital contribution made by the investor. This implies the total cost of the stock less the interest earned on the amount borrowed.
The principles above are illustrated as follows:
Capital gain on stock = stock price at the end - stock price at the beginning
units of stock purchased = 4000/20 = 200
Stock price at the end= 109% × 20 = 21.8
Capital gain = (21.8 - 20) × 200 = 360
Cost of fund = interest rate × amount borrowed
Amount borrowed = 2000
Cost of fund= 7.5% × 2000 = 150
Rate of Return = Capital gains - cost of funds /(Total cost - amount borrowed)
Rate of return= (360 - 150)/(4000-2000)× 100 = 10.5%
Rate of return = 10.5%