Question

You are bullish on Telecom stock. The current market price is $15 per share, and you have $3,000 of your own to invest. You borrow an additional $3,000 from your broker at an interest rate of 9.5% per year and invest $6,000 in the stock.

Answer 1

Rate of return = 6.5%

Step-by-step explanation:

Given:

Initial investment = $6,000

Current market price = $15 per share

Number of stock = 400

Missing Growth rate = 8%

Find:

Rate of return

Computation:

Increase in investment = $6,000 x 8%

Increase in investment = $480

Interest paid = $3,000 x 9.5%

Interest paid = $285

Rate of return = [480 - 285]/3,000

Rate of return = 6.5%