An Investor Puts Up $5,000 but Borrows an Equal Amount

question 17

Multiple Choice

An investor puts up $5,000 but borrows an equal amount of money from their broker to double the amount invested to $10,000.The broker charges 7% on the loan.The stock was originally purchased at $25 per share and in one year the investor sells the stock for $28.The investor's rate of return was ____.

• A) 17%
• B) 12%
• C) 14%
• D) 19%

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Definitions:

Current Assets

Assets that are expected to be converted into cash or used up within one year or one business cycle, whichever is longer, such as cash, inventory, and receivables.

Cash Flow To Creditors

The amount of cash a company pays to its creditors and bondholders, indicating the flow of cash intended to cover debts.

Operating Cash Flow

Operating cash flow is a measure of the cash generated by a company's normal business operations, indicating its ability to cover operating expenses and invest in its business.

Net New Borrowing

The difference between the total amount of debt a company takes on and the amount it repays within a specific period, indicating the net increase in debt.