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Here is the following scenario for a 1 year investment: Purchase stock: $101 Equity invested: $73 Debt: $27 Interest Rate: 10% Sales price after 1

Here is the following scenario for a 1 year investment:

Purchase stock: $101

Equity invested: $73

Debt: $27

Interest Rate: 10%

Sales price after 1 year: $157

Answer the following questions (Show your calculations for full credit):

1. What is the leverage ratio?

2. What is the rate of return for the year?

3. If the leverage ratio were to increase would the rate of return for the year increase or decrease? Explain from a mathematical or arithmetical view why this is the case?

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