Problem:
You have accumulated $12,000 and are looking for the best rate of return that can be earned over the next year. A bank savings account will pay 5%. A one-year bank certificate of deposit will pay 8%, but the minimum investment is $15,000.
Required:
Question 1: Calculate the amount of return you would earn if the $12,000 were invested for one year at 5%.
Question 2: Calculate the net amount of return you would earn if $3,000 were borrowed at a cost of 15%, and then $15,000 were invested for one year at 8%.
Question 3: Calculate the net rate of return on your investment of $12,000 if you accept the strategy of part b.
Note: Please show basic calculation