If the rate of return is lower than the cost of borrowing:
A) an investor will lose money after paying back the loan.
B) an investor should make the investment.
C) a borrower will make money after taking out the loan.
D) banks will offer more loans.

Question

Quizplus · Accepted Answer

If the rate of return is lower than the cost of borrowing, it means that the investor will have to pay back the loan with interest that is higher than the return on the investment. This results in a loss for the investor. Therefore, it is not advisable to make the investment in this situation.

If the Rate of Return Is Lower Than the Cost