Question example:
Tori bought one share of Chipotle stock on Nov 1, 2016 for $396.33. Then, four years later, she sold it and the closing price for that day was $778.38.
a)How much money did she gain/lose with this stock?
b)What was Tori’s return on investment?
Answer and explanation:
The ROI(Return on investment) formula calculates the percentage return on the initial cost of investment.
To calculate return on investment, we must first calculate how much is gained or lost by subtracting price of investment when sold from price of investment when bought.
In the question above, the gain on the investment is gotten by subtracting closing price of Chipotle stock four years later $778.38 from price of Chipotle stock when it was bought on Nov 1, 2016 $396.33= $382.05
By getting our gain or loss on investment first, we are able to find the Return on investment(ROI) in percentage thus: $382.05/$396.33×100/1= 96.39%
We simply cannot divide first before subtraction because we need to get the gain or loss on investment and then express it as a percentage of the initial investment cost to get our ROI
