When investing money, people like to know exactly how much they are earning over a period of time. Also, when comparing investments, it is good to compare how the investments performed. Comparing the investment would be easy if the investor invests the same amount of money in all investments; however, this is not usually the case. Return on investment shows how much money an investment made on equal initial investment terms. For example, an investment makes $50 in a month with a $100 investment, and another investment makes $75 on a $120 investment. Return on investment will show which of these investments has a better return.
Step 1
Determine the investment's beginning balance on the first of the month and the investment's ending balance on the last day of the month. For example, a stock was worth $14 on Jan. 1. On Jan. 31, the stock price rose to $18.
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Step 2
Subtract the beginning price from the ending price. In our example, $18 minus $14 equals $4.
Step 3
Divide the number calculated in Step 2 by the beginning price of the investment to find the rate of return for the month. In our example, $4 divided by $14, equals a rate of return of 0.286 or 28.6 percent.
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