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kompoz [17]
1 year ago
11

You are bullish on Telecom stock. The current market price is $40 per share, and you have $8,000 of your own to invest. You borr

ow an additional $8,000 from your broker at an interest rate of 4.0% per year and invest $16,000 in the stock.
Required:

a. What will be your rate of return if the price of Telecom stock goes up by 6% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.)
Business
1 answer:
Marrrta [24]1 year ago
7 0

The rate of return if the price of Telecom stock goes up by 6% during the next year is 8.00%

What is rate of return?

The rate of return on the bullish strategy is the return on the stock minus the interest on the borrowing.

The share price increase of 6% means the total amount invested would increase by 6%

new value of investment=$16000*(1+6%)

new value of investment=$16,960

interest on borrowing=4%*$8000

interest on borrowing=$320

Gain on investment=new value of investment-initial investment-interest on borrowing

Gain on investment=$16,960-$16,000-$320

Gain on investment=$640

rate of return=gain on investment/equity investment

rate of return=$640/$8000

rate of return=8.00%

Find out more about rate of return on:brainly.com/question/18716615

#SPJ1

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