Question

Rick Mendez bought stock for $5,000, using $2,500 of his own money and $2,500 borrowed from the broker. One month later, the stock is sold for $5,650. Interest owed to the broker is $30; brokerage commissions to buy and sell the stock totaled $300. Rates of return: %

Answer 1

Answer:

It is 6%

Explanation:

The stock that is bought by Rick Mendez: 5,000

Own money used to buy: 2,500

Borrowed money: 2,500

Interest on borrowed money : 30

Brokerage commissions: 300

The stock is sold after one month: 5,650

Now first calculate the net profit = Selling price of stock – cost price of stock – Interest on borrowing – commission

5,650-5,000-30-300=320

Now calculate the rate of return = Net profit / cost of stock

320/5,000=.06

.06 or 6%