Return On Investment Essay

4.1 Return on investment is the amount of profit expected from an investment. For example, I invested $194 on a pair of limited edition sneakers knowing that there would be a demand for them in the aftermarket. I listed them for $350 and sold them for $300. The return on my investment was $106. This is what is meant by a return on investment.

Income comes in forms of dividends from stocks, mutual funds, or interest received on bonds. Income for an investment is the money that investor receive periodically from investments they own. Capital gains/losses focus on the change in an investment’s market value. If the investment sells for more than the price it was purchased for, it is considered a capital gain. If the investments sell for under the original price it was purchased

If you aren’t reinvesting the money you are receiving from an investment, you are allowing yourself to receive less than the 10% you invested for. The example given in the book explains that if you invest on a $1000 bond that pays 8% over 20 years, you will receive $80 per year. If you decide not to reinvest that money, you will receive a total of $2,600, which equal about 4.9 in IRR. If you do reinvest the $80 you receive annually from the bond you invested in, you would have made $4,661.

4.8 When the present values of benefits’ returns are greater than the original cost of the investment made, the investment is considered a satisfactory one. For IRR, as long as the yield is greater than the required return rate, then it could also be recognized as a satisfactory investment.

4.9 Risk is the uncertainty of what an investment will actually return. Risk-Return Tradeoff is a relationship between risk and return in which investors want to make the highest return possible based on the risk they are willing to take. The higher the risk, the higher the payoff will