You would like to invest $128327 in an investment that has an expected rate of return of 13.38%. You plan to borrow 61% of the money ($78279.47) from a friend, so that you will put up $50047.53 of your own money. The cost of debt (interest rate on the loan) is 10.62% and there are no taxes or transaction costs. With the arrangement, what will be the expected rate of return on your equity investment of $50047.53? (Percent with 2 decimals.)
Calculating Expected Return earned,
Amount Earned = 128,327(1.1338) - 78,279.47(1.1062) - 50,047.53
Amount Earned = $8,856.87
Rate of Return = 8,856.87/50,047.53
Rate of Return = 17.70%
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