How is the Return on Investment (ROI) calculated?

How is the Return on Investment (ROI) calculated?

• A. (Cost of Investment - Current Value of Investment) / Cost of Investment
• B. (Current Value of Investment + Cost of Investment) / Cost of Investment
• C. (Current Value of Investment - Cost of Investment) / Current Value of Investment
• D. (Current Value of Investment - Cost of Investment) / Cost of Investment

Answer: (D)

The Return on Investment (ROI) is a financial metric used to evaluate the efficiency of an investment or to compare the efficiency of several investments. The correct formula for calculating ROI is to take the difference between the current value of the investment and the cost of the investment, then divide that difference by the cost of the investment. This calculation essentially measures the profit generated by the investment relative to its cost. By using this formula, you are able to assess how well your investment has performed. A positive ROI indicates that the investment has made a profit, while a negative ROI implies a loss. In this context, the formula for ROI as stated is: (Current Value of Investment - Cost of Investment) / Cost of Investment. This provides a clear picture of how much profit has been made from the investment, expressed as a percentage of the initial cost, allowing for easier comparison with other investments or performance benchmarks. Other answer choices either misrepresent the relationship between cost and value or incorrectly adjust the components leading to an inaccurate calculation of ROI, which would not yield a correct assessment of the investment's performance.

The Return on Investment (ROI) is a financial metric used to evaluate the efficiency of an investment or to compare the efficiency of several investments. The correct formula for calculating ROI is to take the difference between the current value of the investment and the cost of the investment, then divide that difference by the cost of the investment.

This calculation essentially measures the profit generated by the investment relative to its cost. By using this formula, you are able to assess how well your investment has performed. A positive ROI indicates that the investment has made a profit, while a negative ROI implies a loss.

In this context, the formula for ROI as stated is: (Current Value of Investment - Cost of Investment) / Cost of Investment. This provides a clear picture of how much profit has been made from the investment, expressed as a percentage of the initial cost, allowing for easier comparison with other investments or performance benchmarks.

Other answer choices either misrepresent the relationship between cost and value or incorrectly adjust the components leading to an inaccurate calculation of ROI, which would not yield a correct assessment of the investment's performance.