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Catherina makes an investment in the Australian equity market index using her own fund of $200,000 and a margin loan that provides $100,000. The following
Catherina makes an investment in the Australian equity market index using her own fund of $200,000 and a margin loan that provides $100,000. The following table is prepared by Catherina. If there is a 40% rise in her portfolio value, compute the net portfolio value and the loan to value (LVR) ratio for her geared portfolio. What is the rate of return of her investment with gearing? (5 marks)
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| Geared Portfolio | Ungeared Portfolio |
| Initial Investment | 200,000 | 200,000 |
| Borrowed Fund | 100,000 | 0 |
| Portfolio Value | 300,000 | 200,000 |
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