Answer: -45%.

### Explanation The correct answer is **A (-45%)** because it accurately reflects the return on investment for the investor, considering the leverage and cost of borrowing. 1. **Total Purchase Price**: $25/share × 1,000 shares = $25,000. 2. **Leverage Ratio of 2**: Indicates the buyer's equity is half of the total purchase price. - Buyer's equity = 1/2 × $25,000 = $12,500. - Borrowed amount = $25,000 - $12,500 = $12,500. 3. **Interest on Borrowed Money**: 5% × $12,500 = $625. 4. **Sale Proceeds**: $20/share × 1,000 shares = $20,000. 5. **Net Return to Buyer**: Sale proceeds - Purchase price - Interest payment = $20,000 - $25,000 - $625 = -$5,625. 6. **Return on Investment**: -$5,625 / $12,500 = -45%. **Why not B or C?** - **B (-40%)** is incorrect because it ignores the cost of borrowing. - **C (-23%)** is incorrect because it calculates the return on the total purchase value without considering leverage.

Author: LeetQuiz Editorial Team