Detailed Explanation

Step 1: Calculate the total investment value

• Purchase price: $100/share
• Shares: 10,000
• Total purchase value = $100 × 10,000 = $1,000,000

Step 2: Calculate the investor's equity contribution

• Leverage ratio = 2.5
• This means total investment = 2.5 × investor's equity
• Investor's equity = Total investment ÷ 2.5 = $1,000,000 ÷ 2.5 = $400,000
• Borrowed amount = $1,000,000 - $400,000 = $600,000

Step 3: Calculate interest expense

• Call money rate = 5% per annum
• Interest expense = $600,000 × 5% = $30,000

Step 4: Calculate total proceeds from sale

• Sales price: $110/share
• Total sales proceeds = $110 × 10,000 = $1,100,000

Step 5: Calculate dividend income

• Dividends: $5/share
• Total dividends = $5 × 10,000 = $50,000

Step 6: Calculate net profit

• Gross profit from sale = $1,100,000 - $1,000,000 = $100,000
• Add dividends = $100,000 + $50,000 = $150,000
• Subtract interest expense = $150,000 - $30,000 = $120,000

Step 7: Calculate return on investment

• Investor's equity = $400,000
• Return on investment = Net profit ÷ Investor's equity = $120,000 ÷ $400,000 = 0.30 = 30%

Verification:

• Total investment: $1,000,000
• Equity: $400,000 (40%)
• Borrowed: $600,000 (60%)
• Leverage amplifies returns: Without leverage, return would be (($110 - $100 + $5) ÷ $100) = 15%
• With 2.5× leverage: 15% × 2.5 = 37.5%, but adjusted for interest cost of 5% on borrowed portion: 15% + (15% - 5%) × (600,000/400,000) = 15% + 10% × 1.5 = 15% + 15% = 30%

Therefore, the correct answer is C. 30%.