Question

1) A) If an investor received $105 at the end of the year having invested $100 at the beginning of the year, what is his annualized ROI? B) Assuming the same rate of return for the next three years, how much would the investor receive at the end of the fourth year on his initial $100 investment? C) What is the ROI for the four years of this investment?

Answer 1

Answer 1)

Annualised ROI = (Value at end - value at beginning) / Value at beginning

Annualised ROI = (105-100)/100

Annualised ROI = 5%

Answer 2)

Rate of Return = 5%

Value at time 0 = 100

Value at time 4 = Value at time 0 * (1 + Rate of return%) ^ 4

Value at time 4 =100 * (1.05)^4

Value at time 4 =121.5506

Answer 3)

ROI = (Final value of investment - Initial Investment) / Initial Investment * 100%

ROI = (121.5506-100)/100 * 100%

ROI =21.5506/100 * 100%

ROI =21.5506%