How To Calculate The Return On Investment
Determining what your return on investment is has become a major part of any investment review, and it should be. No matter what you are investing in, whether it is a savings account or real estate, stocks or new business ventures, knowing the return on investment will better help you make important investment decisions. There are many ways that people calculate the return on their investment, but the annual percentage yield return on investment calculation is the one that is used the most. The first step in the calculation is to figure out exactly what costs you have into the investment. Are there any upfront costs, maintenance fees, taxes or other fees, and how much time you have invested. Make sure that you list all costs, even hidden costs, because these are costs needed to retain the value of your investment.
Next you have to calculate or estimate any returns on the investment. How much money will you receive from the investment, and when will you receive it? List all revenue you will receive from the investment, whether it is monthly rent for a real estate investment or dividends for a stock investment. Now you have to establish a cost and return timeline. List in chronological order any costs and returns that you have from the investment. Use positive numbers for returns and negative numbers for costs on the investment.
Now the complex formula is applied which looks like this: APY=final return/initial investment^365/days of investment-1. This basically means that you take the final dollar return amount and divide it by the initial investment. This number is raised to 365 which has been divided by the number of days it took you to complete the investment. This number is reduced by one and then divided by one hundred to get the annual percentage yield. This is your return on investment in a percentage form. Knowing how to calculate the return on an investment is an important skill for any investor who wishes to be successful. This is a calculation used by investors to compare various investment methods and choose which methods are right for them. The return on investment will let an investor compare investments to examine which investment pays more overall, and has a better return. This allows investors to choose investment methods that have a higher return, which means a higher profit. This formula is one that every investor should know and use.
Copyright © 2007 Joel Teo. All rights reserved.
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