Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 7%...

 

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Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 7% interest rate to invest in the stock market. You invest the entire $20,000 in an exchange-traded fund (ETF) with a 12% expected return and a 20% volatility. Assume that the ETF you invested in returns - 10%. Then the realized return on your investment is ? Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 7% interest rate to invest in the stock market. You invest the entire $20,000 in an exchange-traded fund (ETF) with a 12% expected return and a 20% volatility. Assume that the ETF you invested in returns - 10%. Then the realized return on your investment is ?

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The scenario presented in the question describes an investment situation where leverage is used to i... View the full answer