You have two investment opportunities. One will have a 12.0% rate of return on a

Question

You have two investment opportunities. One will have a 12.0% rate of return on an investment of $540; the other will have an 15.0% rate of return on principal of $800. You would like to take advantage of the higher yielding investment but have only $540 available.

What is the maximum rate of interest that you would pay to borrow the $260 needed to take advantage of the higher yield? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the maximum rate of interest that you would pay to borrow the $260 needed to take advantage of the higher yield? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Return on First Investment = $ 540 * 12% = $ 64.80

Return on second investment = 800 * 15% = 120

so Increase in returndue to investment of more 260 in second investment = 120-64.80 =$ 55.20

Maximum rate to pay = return /investment

                                   = 55.20 /260

                                   = .2123 or 21.23%

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.