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Suppose an investor is bullish on FinCorp stock, which is selling for $100 per share. An investor with $10,000 to invest expects FinCorp to go
Suppose an investor is bullish on FinCorp stock, which is selling for $100 per share. An investor with $10,000 to invest expects FinCorp to go up in price by 30% during the next year. Ignoring any dividends, the expected rate of return would be 30% if the investor invested $10,000 to buy 100 shares. But now assume the investor borrows another $10,000 from the broker and invests it in FinCorp, too. The total investment would be $20,000 (for 200 shares). Assuming an interest rate on the margin loan of 9% per year, what will the investor's rate of return be (again ignoring dividends) if the stock price increases 30% by year's end? Suppose that, instead of going up by 30%, the stock price drops by 30% to $70 per share, what would be the rate of return
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