Leverage - Another angle of looking at the real cost of Interests

Is finance charge or loan interest at 4% a big deal? You don't think so. It is probably a small sum, 4% nia.

But, if you are as calculative as yours truly, then you may give a second thought.

For example:

You have $100K capital, and you want to invest on $600K asset. E.g. you may need to borrow $500K at 4% finance charges.

Interest paid = $500K * 4% = $20K.

$20K Interest paid against your $100K capital = 20%.

In another word, the inital return of 20% (ROC) of your capital is taken away by your banker, and anything in excess of 20% is for you to keep.

If one thinks in term of ROC, then the math is different. Still confused??? I love to confuse you. Ha ha!