Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 6%...

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Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 6% interest rate to invest in the stock market

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Answer 1

Answer #1

Total loss which has been made-

(Rate of return*total investment)-(interest paid)

(-10%*20000)-(6%*1000)

= (-2000-600)

= -2600

Rate of return which has been earned on initial investment without Borrowing-

=( -2600/10000)

= 26%

The correct answer will be option (C )-26%

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Answer 2

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