Answer: 30%.

## 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%**.

Author: LeetQuiz .