The problem describes a scenario where you buy 200 shares of Telecom for $10,000. The shares increase in value by 10%, which is equal to $1,000. You pay interest of 0.08 on a $5,000 loan, which equals $400. The problem asks us to calculate the rate of return. The given solution shows the calculation of the rate of return using the formula: $\frac{$1,000-$400}{$5,000} = 0.12 = 12%$.
2025/6/18
1. Problem Description
The problem describes a scenario where you buy 200 shares of Telecom for $10,
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0. The shares increase in value by 10%, which is equal to $1,
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0. You pay interest of 0.08 on a $5,000 loan, which equals $
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0. The problem asks us to calculate the rate of return. The given solution shows the calculation of the rate of return using the formula: $\frac{$1,000-$400}{$5,000} = 0.12 = 12%$.
2. Solution Steps
The problem already provides the solution. Here are the steps broken down:
Step 1: Calculate the profit from the stock increase.
The shares increase in value by 10%, which translates to a profit of $1,
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Step 2: Calculate the interest paid.
The interest paid is calculated as 0.08 *
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Step 3: Calculate the net profit.
The net profit is the profit from the stock increase minus the interest paid: 400 = $
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Step 4: Calculate the rate of return.
The rate of return is calculated as the net profit divided by the initial investment (which is the $5,000 loan).
Rate of return =
Rate of return = \frac{600}{5,000} = 0.12 = 12%
3. Final Answer
The rate of return is 12%.