Question

You would like to invest ​$128327 in an investment that has an expected rate of return...

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.)

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Answer #1

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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