What is the return on your investment over the next year

Reference no: EM133374543

Question You think that AB Inc. is a great stock. The current market price is $40 per share, and you want to have a total of $4,000 to invest in the stock. You borrow $2,000 to invest in the security, at a yearly interest rate of 10%.

(a) Suppose that the value of one share of AB rises by 15% over the next year, and the company pays no dividends. What is the return on your investment over the next year, given that you have borrowed $2,000? What would the return be if you did not borrow any money to make the investment?

(b) Suppose that you invested $3,000 in AB and invested the remainder of your money ($1,000) in a bond with an interest rate of 10%. If the value of AB rises by 20% over the next year, what is the return on this investment?

Reference no: EM133374543

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