ITPEC FE Morning April 2020 Question 79
Topic: Corporate Activities
An investor purchased property A for $500,000. Two years later, the investor sold the property for $1,000,000. Which of the following is the ROI of this investment (%)?
Explanation
100% — ROI is the profit an investment earns divided by the amount invested.
- •Profit: $1,000,000 − $500,000 = $500,000
- •ROI: 500,000 ÷ 500,000 × 100 = 100%
The investment doubled, so the gain equals the whole original outlay.
Answer (b)
Why not others:
- •(a) 50 — divides the profit by the sale price (500,000 ÷ 1,000,000) instead of by the amount invested, or spreads the gain over the two years; the question asks for the ROI of the whole investment
- •(c) 150 — follows from no ratio of the given amounts; the profit is exactly equal to the investment
- •(d) 200 — the sale price divided by the purchase price, the total amount returned, which still includes the original $500,000
Key rule: ROI = (return − investment) ÷ investment × 100; subtract the investment before dividing, or you measure what came back rather than what was gained.
Corporate Activities · AI-written, may contain errors
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