Question

On January 1, 20X1, an investor purchases shares of stock in a company for $10,000 cash. At the end of 20X1, the investor receives $400 in dividends and sells his ownership at the end of 20X1 for $10,600. What is the return on investment?

Answer 1

The answer is: The investor received a 10% ($1000) return on his investment.

Step-by-step explanation:

Lets say the investor bought $10,000 worth of stocks on January 1, 2020. On December 31, 2020, he received a $400 dividend and sold his stocks for $10,600.

That means that at the beginning of 2020 the investor had $10,000 and by the end of the year he had $11,000. To calculate the return of investment (ROI) we do the following:

ROI = [ ( $11,000 / $10,000 ) - 1 ] x 100 = 10%