Return On Investment (ROI)


ROI is a performance measure used to evaluate the efficiency of an investment. The return that an investment provides is typically measured on an annualized basis. That return includes all dividends, interest, rent, and other income, as well as return of capital and capital appreciation upon sale or winding down of the investment. The rate of return is calculated versus the initial amount of the investment.


For example, if you invested $10,000 in a stock that pays no dividends, then sold it 2 years later for $11,000 then your annualized ROI was 4.874%.


NOTE: Notice that the ROI is less than 5%. This is because after year one, $10,000 has grown to $10,500. For the second year that extra $500 would be earning 5% (or an extra $25).


NOTE: You can perform your own return on investment calculations at this website.


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