Calculating Investment Returns

Show your work for each problem.

1.
If you invest 100 dollars and it grows to 120 dollars, what is your total return in dollars?
1. a)10 dollars
2. b)120 dollars
3. c)100 dollars
4. d)20 dollars
Answer: 20 dollars
Total return = 120 - 100 = 20 dollars. This is the actual dollar amount gained.
2.
You invested 200 dollars and now have 250 dollars. What is your total return in dollars?
Answer: 50
Total return = 250 - 200 = 50 dollars.
3.
An investment went from 500 dollars to 400 dollars. Is this a positive or negative return?
1. a)Positive return
2. b)Zero return
3. c)Negative return
4. d)Cannot be determined
Answer: Negative return
Since 400 < 500, the investment lost value. The return is 400 - 500 = -100 dollars, which is negative.
4.
You invested 400 dollars and it grew to 480 dollars. What is your percentage return?
Answer: 20
Total return = 480 - 400 = 80 dollars. Percentage return = (80/400) * 100% = 20%.
5.
Emma invested 800 dollars in stocks. After one year, her investment is worth 920 dollars. Calculate her percentage return.
Answer: 15
1. What is Emma's initial investment? 800
2. What is the final value of her investment? 920
3. What is the total return in dollars? (Final - Initial) 120
4. What is the percentage return? (Total return / Initial * 100) 15
6.
Investment A gained 50 dollars on an initial investment of 250 dollars. Investment B gained 80 dollars on an initial investment of 800 dollars. Which had the better percentage return?
1. a)Cannot determine
2. b)Investment B (10%)
3. c)They are equal
4. d)Investment A (20%)
Answer: Investment A (20%)
Investment A: (50/250) * 100% = 20%. Investment B: (80/800) * 100% = 10%. Investment A had the better return despite gaining fewer dollars!
7.
A stock dropped from 600 dollars to 510 dollars. What is the percentage return?
Answer: -15
Total return = 510 - 600 = -90 dollars. Percentage return = (-90/600) * 100% = -15%. The negative sign indicates a loss.
8.
Lucas bought 20 shares at 25 dollars each. After a year, each share is worth 30 dollars. What is his percentage return?
Answer: 20
1. What was the total initial investment? (20 shares * 25 dollars) 500
2. What is the total final value? (20 shares * 30 dollars) 600
3. What is the total gain in dollars? 100
4. What is the percentage return? 20
9.
A savings account earns 4% interest annually. If you deposit 1,000 dollars, how much will you have after one year?
1. a)1,400 dollars
2. b)40 dollars
3. c)1,040 dollars
4. d)1,004 dollars
Answer: 1,040 dollars
Interest = 1,000 * 0.04 = 40 dollars. Total = 1,000 + 40 = 1,040 dollars.
10.
You invested 2,500 dollars and earned a 12% return. How much money did you gain in dollars?
Answer: 300
Gain = 2,500 * 0.12 = 300 dollars. Your investment grew by 300 dollars.
11.
An investment of 5,000 dollars grew to 6,655 dollars over 3 years. What is the approximate annualized return? (Round to the nearest whole number)
Answer: 10
1. What is the ratio of Final/Initial? (6655/5000) 1.331
2. What is this ratio raised to the power of 1/3? (The cube root) 1.1
3. Subtract 1 to get the decimal return 0.1
4. Convert to percentage 10
12.
If an investment loses 50% one year and gains 50% the next year, what is the overall return?
1. a)-25%
2. b)+25%
3. c)0% (break even)
4. d)-50%
Answer: -25%
Start: 100 dollars. After -50%: 100 * 0.5 = 50 dollars. After +50%: 50 * 1.5 = 75 dollars. Overall return: (75-100)/100 = -25%.
13.
A property was bought for 180,000 dollars and sold for 234,000 dollars after 3 years. What was the total percentage return?
Answer: 30
Total return = (234,000 - 180,000) / 180,000 * 100% = 54,000 / 180,000 * 100% = 30%.
14.
Sophia invested 3,000 dollars. Year 1: +20% return. Year 2: -10% return. What is her final value and overall percentage return?
Answer: 8
1. What is the value after Year 1? (3000 * 1.20) 3600
2. What is the value after Year 2? (3600 * 0.90) 3240
3. What is the total gain in dollars? 240
4. What is the overall percentage return? 8
15.
An investment doubled in value over 7 years. What is the approximate annualized return?
1. a)About 10%
2. b)About 14%
3. c)About 20%
4. d)About 100%
Answer: About 10%
Annualized return = 2^(1/7) - 1 = 1.104 - 1 = 0.104 = about 10%. This is the Rule of 72 in action: 72/7 = 10.3%.