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Lesson 13

Investment Returns & ROI

Calculate return on investment and portfolio performance.

  • master

Formula

ROI = ((Gain - Cost) / Cost) × 100

📚 Investment Returns & ROI

ROI (Return on Investment) measures how much profit you made on an investment relative to its cost. It's one of the most important metrics in business and investing.

ROI = ((Gain - Cost) / Cost) × 100

Example: Stock Investment

You bought stock at $50 per share and sold it at $75 per share.

1
Gain = $75, Cost = $50
2
ROI = (($75 - $50) / $50) × 100
3
ROI = ($25 / $50) × 100 = 50%

You made a 50% return on your investment!

Annualized Returns:

When investments are held for different time periods, we use annualized returns to compare them fairly.

Formula: Annualized Return = ((Final Value / Initial Value)^(1/years) - 1) × 100

💡 Real-World Example: Property Investment

You bought a property for $200,000 and sold it for $250,000. You paid $10,000 in fees.

1
Net proceeds = $250,000 - $10,000 = $240,000
2
Gain = $240,000 - $200,000 = $40,000
3
ROI = ($40,000 / $200,000) × 100 = 20%

⚠️ Important: Always account for all costs (fees, commissions, taxes) when calculating true ROI. Net profit matters more than gross profit!

Frequently Asked Questions

How do I calculate the return on an investment?

ROI = (final value − amount invested) ÷ amount invested × 100. $10,000 that becomes $11,500 has returned 15%.

How do I compare investments held for different lengths of time?

Annualise the return: (1 + total return)^(1 ÷ years) − 1. A 21% gain over two years is about 10% a year.

Practice

Work each one out, then check yourself.

  1. You invested $2,000 and it's now worth $2,600. What's your ROI?

    Hint: Gain = $2,600 - $2,000 = $600. ROI = ($600 / $2,000) × 100

    Show answer

    30

  2. You bought property for $200,000, sold for $250,000 after fees of $10,000. What's the net ROI?

    Hint: Net proceeds = $250,000 - $10,000 = $240,000. Gain = $40,000. ROI = ($40,000 / $200,000) × 100

    Show answer

    20

Final Quiz

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Test what you learned. Pick the correct answer for each question.

  1. Invested $1,000, sold for $1,200. ROI?

    Invested $1,000, sold for $1,200. ROI?

  2. A portfolio doubles in value. ROI?

    A portfolio doubles in value. ROI?

  3. Annualized return of 8% over 5 years grows $10k to:

    Annualized return of 8% over 5 years grows $10k to: