Investment: Rate of Return (Part 2)

“I have earned $5,000 from share investment!” Again, hold on first.

If your investment capital was $50,000, then the rate of return is 10%; However, if your principal was $500,000, the return is only 1%.

How to calculate it? Well the formula is ((V1/V0)-1)*100 where V1 is current investment value while V0 is your principal.

Let us take an example. Say your principal was $50,000 (i.e. V0) and you earned $5,000. Therefore, your current investment value is $55,000 (i.e. V1). The total rate of return will be ((55,000/50,000)-1)*100 which will generate a value 10 which means 10%. To make it more meaningful, we shall consider time frame into this calculation as well.

So, whenever there is someone to show off in front of you that he/she has earned $XXX from share investment, ask him/her about her investment capital first.