Question

A company made a profit of $25,000 over a period of 5 years on an initial investment of $10,000. What is its annualized ROI?

Answer 1

50% I got it right on the test

Explanation:

The profit was 25,000, not the final amount. So, you have to add that 25,000 to the 10,000

ROI: (35,000 - 10,000) / 10,000 * 100 = 250%

annualized ROI: 250% / 5 years = 50%

Answer 2

Given:
Initial Investment = 10,000
Total profit = 25,000
Total number of years = 5 years

Return on Investment = Gain from Investment - Cost of Investment
cost of investment

ROI = (25,000 - 10,000) / 10,000 = 15,000/10,000 = 1.5 x 100% = 150%

ROI = 150% ÷ 5 years = 30% per year.