Returns

A return is a profit or a loss on an investment during a particular time period. If investment results in a profit, it is said to bear a positive return while if it results in a loss, it is described as a negative return.

The rate of return is calculated by determining the difference between the final value (or the current value) and the initial investment value, then dividing the result by the initial investment value.

Example

Suppose an investor buys 100 shares of a company at a price of $10 per share, the cost of investment is $1000 ($10*100). If the market value of the share increases to $12 after one year and the investor sells the shares at $12, then the amount received will be $1200 ($12*100). In such a case, the return can be calculated as:

Return = ($1200 - $1000) / $1000 = 0.20 or 20%

Similarly, if the market price of the share reduces to $800, then the investment will be said to have a negative return which can be calculated as:

Return = ($800 - $1000) /  $1000 = - 0.20 or -20%