Tom and Ben Both Intend to Invest $50,000 (That They

question 66

Essay

Tom and Ben both intend to invest $50,000 (that they have each received from an inheritance)in Macquarie Group shares that are currently trading at $50 per share.Tom prefers an unlevered investment, whereas Ben decides to borrow a further $50,000 at 10% pa so that he can initially purchase $100,000 in shares.Compare the potential returns and risks for a one year investment (ignoring transaction costs and taxes)for two investors assuming firstly, the share price increases from $50 to $60, and secondly, the share price falls from $50 to $40.

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