Mortgage Interest Rate Comparison Calculator

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ROI Calculator

Calculate your Return on Investment (ROI) to understand the profitability of your investments. ROI is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments.

Understanding Return on Investment (ROI)

Return on Investment (ROI) is a fundamental metric used to assess the profitability of an investment relative to its cost. It helps investors determine how effectively their capital is being utilized. A positive ROI indicates that the investment has generated a profit, while a negative ROI signifies a loss.

The basic formula for ROI is:

ROI = ((Final Value – Initial Investment) / Initial Investment) * 100%

In addition to the basic ROI, it's often useful to understand the annualized ROI, especially for investments held over different time periods. The annualized ROI gives you a comparable rate of return on an annual basis. The formula for annualized ROI is:

Annualized ROI = ((Final Value / Initial Investment)^(1 / Time Period) – 1) * 100%

When evaluating investments, consider both the total ROI and the annualized ROI to make informed decisions. Higher ROI generally indicates a more profitable investment. Remember that ROI doesn't account for the time value of money or risk associated with an investment.

Example Calculation

Let's say you invested $10,000 (Initial Investment) in a stock. After 5 years, the value of your investment grew to $15,000 (Final Value).

Using the ROI formula:

ROI = (($15,000 – $10,000) / $10,000) * 100%

ROI = ($5,000 / $10,000) * 100%

ROI = 0.5 * 100% = 50%

Now, let's calculate the Annualized ROI:

Annualized ROI = (($15,000 / $10,000)^(1 / 5) – 1) * 100%

Annualized ROI = (1.5^(0.2) – 1) * 100%

Annualized ROI = (1.08447 – 1) * 100%

Annualized ROI = 0.08447 * 100% = 8.45% (approximately)

This means your investment yielded a total return of 50% over 5 years, which is equivalent to an average annual return of about 8.45%.

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