COMPUTING STOCK RETURNS AND CALCULATING ROI RETURN ON INVESTMENT

FORMULA ROI = Current Profit on Stock / Purchase Price + Commission Purchase Price = # of Shares X $ Shares Total Cost = Purchase Price + Commission Dividends = $ per Share Current Price = # of Shares X Current Price Profit = Dividends + Current Price Return = Profit – Total Cost Rate of Return = Return/Total Cost

EXAMPLE 1 Jimmy purchased 200 shares of ABC Corporation for $20 a share and paid a commission of $150. The current price of the stock is $27 per share. Last year, Jimmy received dividends of $2 per share. Calculate the ROI

EXAMPLE 1 Purchase Price = # Shares X $ Shares Purchase Price = $200 X $20 = $4,000 Commission = $150 Total Cost = $4,000 + $150 = $4,150 Dividends = $2/per Share (200 Shares) = $2 X 200 = $400 Current Price = # Shares X Current Price Current Price = 200 X $27 = $5,400 Profit = Dividends + Current Price Profit = $400 + $5,400 = $5,800 Return = Profit – Total Cost Return = $5,800 - $4,150 = $1,650 Rate of Return = Return/Total Cost Rate of Return = $1,650/$4,150 =.3976 = 39.8%

EXTENDED Purchase Price = # Shares X $ Shares Purchase Price = $200 X $20 = $4,000 Commission = $150 Total Cost = $4,000 + $150 = $4,150 Dividends = $2/per Share (200 Shares) = $2 X 200 = $400 Current Price = # Shares X Current Price Current Price = 200 X $27 = $5,400 Profit = Dividends + Current Price Profit = $400 + $5,400 = $5,800 Profit – Total Cost / Total Cost = $5,800 - $4,150/$4,150 = 39.8%

EXAMPLE 2 Timmy purchased 100 shares of XYZ Corporation for $21 a share and paid a commission of $115. The current price of the stock is $32 per share. Last year, Timmy received dividends of $3 per share. Calculate the ROI

EXAMPLE 2 Purchase Price = # Shares X $ Shares Purchase Price = 100 X $21 = $2,100 Commission = $115 Total Cost = $2,100 + $115 = $2,215 Dividends = $3/Share = $3 X 100 = $300 Current Price = # Shares X Current Price Current Price = 100 X $32 = $3,200 Profit = Dividends + Current Price Profit = $300 + $3,200 = $3,500 Return = Profit – Total Cost Return = $3,500 - $2,215 = $1,285 Rate of Return = Return/Total Cost Rate of Return =$1,285/$2,215 =.5801 = 58%

EXTENDED Purchase Price = # Shares X $ Shares Purchase Price = 100 X $21 = $2,100 Commission = $115 Total Cost = $2,100 + $115 = $2,215 Dividends = $3/Share = $3 X 100 = $300 Current Price = # Shares X Current Price Current Price = 100 X $32 = $3,200 Profit = Dividends + Current Price Profit = $300 + $3,200 = $3,500 Profit – Total Cost / Total Cost = $3,500 - $2,215/$2,215 = 58%

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