Answer:
Rate of return = -78%
Explanation:
given data
purchases = $5,000
uses = $1,000
remaining = $4,000
interest rate = 7%
stock's value decreases = 10%
solution
we know here cost of borrowing will be with 7 % is
cost of borrowing = 7% of 4,000
cost of borrowing = 280
so
Value of stock after 1 year = 5000 - 5000 × 10%
Value of stock after 1 year = 4500
and
total increase in stock value = value of stock after 1 year - cost of borrowing - Initial value .....................1
put here value we get
Total increase in stock value = 4500 - 280 - 5000
Total increase in stock value = -780
and
Rate of return will be here
Rate of return = [tex]\frac{Total Increase in value}{Initial Investment}[/tex] ....2
put here value
Rate of return = [tex]\frac{-780}{1000}[/tex]
Rate of return = -0.78
Rate of return = -78%
