Question

An investment’s rate of return (ROR), or return on investment (ROI), refers to the increase or decrease in the value of an investment relative to its cost. This return can be expressed either in dollar terms or as a percentage of the cost of the investment.

Suppose a stock sells for $800 and pays no dividends. At the end of one year, the stock’s price decreases to $700. What is the dollar return on investment in this stock?

-$100.00

–$0.12

$100.00

Based on your understanding of investment returns, complete the following sentence:

If the amount to be received at the end of the investment period isgreater than   the amount invested, the investment is said to have a positive return on investment.

You gave $770 to your cousin. As a token of gratitude, your cousin gave you $1,190 at the end of the year instead of $770. If you look at this as an investment, then your annual rate of return would be   .

Which of the following investments generates a higher annual rate of return?

A $1,000 return on a $10,000 investment for 1 year

A $1,000 return on a $10,000 investment after 10 years

Answer 1

1.
=700-800
=-100

2.
If the amount to be received at the end of the investment period is greater than the amount invested, the investment is said to have a positive return on investment.

3.
=1190/770-1
=54.5455%

4.
$1,000 return on a $10,000 investment for 1 year