Question

IN PERCENTAGES

Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 7% interest rate to invest in the stock market. You invest the entire $20,000 in an exchange-traded fund (ETF) with a 10% expected return and a 20% volatility. The expected return on your of your investment is closest to:

Answer 1

Amount Investment in cash = $10,000

Amount borrowed at 7% interest rate = $10,000

Interest amount = $10,000*7%

= $700

You Invested entire $20,000 in ETF which is to give 10% expected return

Expected return on Investment = $20,000*10%

= $2000

So, Expected return on your Investment which is $10,000 = ($2000 - $700)/$10,000

= 13%

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