How Much Will My Investment Be Worth

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How Much Will My Investment Be Worth – Return on investment (ROI) is a key measure of the return on any investment. This is a ratio that compares the profit or loss of an investment against its value. It is useful for estimating current or potential investment returns, whether you are evaluating the performance of your stock portfolio, considering a business investment or deciding whether to start a new project.

These are key indicators used to evaluate and rank the attractiveness of several different investment alternatives.

How Much Will My Investment Be Worth

How Much Will My Investment Be Worth

ROI = NetReturnonInvestment cost of investment × 100% begin&tekt = frac } } times 100% \end ​ ROI = CostofInvestment NetReturnonInvestment ​ × 100%​

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ROI = FVI − IVI CostofInvestment × 100% where: FVI = Finalvalueofinvestment IVI = Initialvalueofinvestment begin&tekt = frac – tekt } } times 100% \&tektbf \&tekt = tekt \ & tekt = tekt \end ​ ROI = investment value FVI − IVI ​ × 100%, where: FVI = final investment value IVI = initial investment value​

When interpreting ROI calculations, it’s important to keep several things in mind. First, ROI is usually expressed as a percentage because it is intuitively easier to understand than a ratio. Second, the ROI calculation includes net income in the numerator because the return on investment can be positive or negative.

When ROI calculations give a positive number, it means that net income is positive (because total income exceeds total costs). But when ROI calculations give a negative value, it means that net income is negative because total expenses exceed total income.

Finally, to calculate ROI with the highest degree of accuracy, total revenue and total costs must be considered. To compare competing investments, you should consider the annual return on investment.

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The ROI formula can be deceptively simple. It depends on proper costing. It is easy, for example, in the case of stocks. But in other cases, it is more difficult, for example, to calculate the ROI of the business project under consideration.

Let’s say an investor bought 1,000 shares of Worldwide Wickets Co. $10 per share. A year later, the investor sold the stock for $12.50. The investor earned $500 in dividends for one year of holding. The investor spent a total of $125 in trading fees to buy and sell the stock.

ROI = ($12.50 – $10) × 1000 + $500 – $125 10 × 1000 × 100 = 28.75% begintekt &= frac times 100 \&= 28.75% = \end $10 × 1000 ($ -$1000) ) × 1000 + $500 − 125 × 100 = 28.75% ​

How Much Will My Investment Be Worth

If we further divide the return on investment into its components, it turns out that 23.75% is attributed to capital gains, and 5% to dividends. This distinction is important because capital gains and dividends are taxed at different rates.

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ROI = CapitalGains% − Commission% + Dividend yield begin&tekt = tekt – tekt + tekt \end ​ ROI = CapitalGains% − Commission% + dividend yield​

Capital Gain = ($2,500 ÷ $10,000) × 100 = 25.00% Fees = ($125 ÷ $10,000) × 100 = 1.25% Dividend Yield = ($500 ÷ $10,000) × 100.00% RO = 5.0% 0% 5.0% + text = ( $2500 div $10,000 ) times 100 = 25.00% \& text = ( $125 div $10,000 ) Multiply by 100 = 1.25% & text = ( $500 div $10,000 ) times 100 = 5.00% \& text = 25.00% – 1.25% + 5.00% = 28.75% \end Capital Gain = (2,500 $, ÷ $1) × 100% = 25. = ($125 ÷ $10,000) × 100 = 1.25% Dividend Yield = ($500 ÷ $10,000) × 100 = 5.00% ROI = 25.00 % 5% − 5.2% + 5.

A positive ROI means that the net profit is positive because the total revenue exceeds all associated costs. A negative return on investment means that total costs exceed revenues.

If, for example, the fees are split, there is an alternative method for calculating this hypothetical investor’s hypothetical return on the Worldwide Wickets Co. investment. Assume the following distribution of total commissions: $50 when you buy stocks and $75 when you sell stocks.

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IVI = $10,000 + $50 = $10,050 FVI = $12,500 + $500 − $75 FVI = $12,925 ROI = $12,925 − $10,050 $10,050 × 100 ROI = 28.75% =% 28.75% Initial investment, $0.00. 0 = $10,050 \ &tekt = $12,500 + $500 – $75 \ &phantom } = $12,925 \&tekt = frac times100 \&phantom } = 28.7 % &tektbf\ & tekt = tekt \&tekt = tekt end ​ IVI = $10,000 + $50 = $10,050 FVI = $12,500 + $500 − $75 FVI = $12,925 ROI = $10,025 $1-0, × 100 ROI = 28. IVI = initial value (cost) of investment FVI = final value of investment

Annual ROI is a solution to one of the key limitations of basic ROI. The basic ROI calculation does not take into account the length of time the investment lasts, also called the holding period. The formula for calculating the annual return on investment is as follows:

Let’s say a hypothetical investment produced a 50% ROI over five years. A simple ROI of 10% calculated by dividing ROI by a five-year holding period is only a rough estimate of ROI on a yearly basis. This is because it ignores mixing effects, which can change significantly over time. The longer the time period, the greater the difference between the average annual return on investment, calculated by dividing the return on investment by the holding period in this scenario, and the annual return on investment.

How Much Will My Investment Be Worth

This calculation can also be used for holding periods of less than a year by converting the holding period to a fraction of a year.

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Let’s say an investment in stock X returned 50% in five years, and an investment in stock I returned 30% in three years. You can determine which investment was better in terms of ROI using this equation:

Leverage can increase ROI if the investment is profitable. Similarly, leverage can increase losses if an investment turns out to be unprofitable.

Let’s say an investor bought 1,000 shares of Worldwide Wickets Co. $10 per share. Let’s also assume that the investor bought this stock at 50% profit (meaning he invested $5,000 of his own equity and borrowed $5,000 from his brokerage firm as a margin loan).

Exactly one year later, this investor sold the stock for $12.50. The stock received a $500 dividend for one year of holding. The investor also spent a total of $125 in trading fees when buying and selling shares.

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The calculation should also take into account the cost of buying on margin. In this example, the margin loan interest rate was 9%.

There are a few important things to keep in mind when calculating ROI in this example. First, the interest on the profit loan ($450) must be factored into the total cost. Second, the initial investment is now $5,000 because of the leverage used in the $5,000 margin loan.

ROI = ($12.50 – $10) × 1000 + $500 – $125 – $450 ($10 × 1000) – ($10 × 500) × 100 = 48.5% begintekt &= frac times 100 .&% Final Return on Investment = ($10 × 1000 ) − ($10 × 500 )($12.50 – $10) × 1000 + $500 – $125 – $450 × 100 = 48.5%

How Much Will My Investment Be Worth

So even though the net dollar profit is reduced by $450 due to marginal interest, the ROI is still significantly higher at 48.50% (versus 28.75% if no leverage is used).

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As another example, consider if the stock price fell to $8.00 instead of rising to $12.50. In this situation, the investor decides to take the loss and sell the entire position.

ROI = [($8 − $10) × 1000] + $500 − $125 − $450 ($10 × 1000) − ($10 × 500) × 100 = − $2075 $5000 = −41.5% start time &= 1c &= – frac \&= -41.5% \end return ROI = ($10 × 1000) − ($10 × 500) [ ($8 – $10) × 1000] + $500 – $125 – $450 × 100 = – $5000 2

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