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Return on investment
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Return on investment
Percentage return relative to initial outlay; Tax on interest/income; Inflation and real growth; compare returns on a common basis
Example 1
Invest $5000. Receive $500 income and a $1000 capital gain over one year. Find the total percentage return.
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Answer: 30
- Return =(income + capital gain) divided by initial investment ×100=50001500×100=30%.
Example 2
An investment costs $6000, loses $600 in value and pays $120 income. Find its net return in dollars.
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Answer: −480
- Net return = income + capital change =120−600=−480.
Example 3
Which investment comparison is most meaningful?
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Answer: Compare net returns over the same period and consider risk
- Fees, timing and risk affect comparisons. Past performance is not a guarantee of future returns.
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