Question

If you invest $200 in a stock, borrowing 90 percent of the $200 at 10 percent interest, and the stock price rises by 20 percent, what is the return on your investment?

Answer 1

Return on investment = 110%

Step-by-step explanation:

`($capital gain + dividends gain - intrest incurred) / invesment`

Investment: the stock is worth 200 from which:

$200 x 90% = $180 financing

We invest the remaining 20 dollars.

capital gain:

$200 x 20% = $40

interest gain: no information thus, we assume is zero

interest incurred

$180 x 10% = $18

Net result: 40 + 0 - 18 = 22

Return on investment

22 / 20 = 1.1 = 110%