Carl sonntag wanted to compare what proceeds he would receive with a simple interest note versus a simple discount note. both ha
1 answer:
You might be interested in
Answer:
return on equity = 10 %
Explanation:
given data
current market price = $80 per share
own invest = $10,000
borrow additional = $10,000
interest rate = 8% per year
invest in stock = $20,000
to find out
rate of return
solution
we know here total investment is 80 × 250 shares = $20,000
and
stock price rise 9 % that is
stock price = 80 × ( 1 + 9%)
stock price = $87.2
and after 1 year investment value will be = 250 × 87.2
after 1 year investment value = $21800
so
payment to broker will be
payment to broker = borrow fund + interest
payment to broker = $10000 × ( 1+ 8% )
payment to broker = $10800
so remaining after payment to broker is = $21800 - $10800 = $11000
so
return on equity is here
return on equity =
return on equity = 10 %