To determine the rate of return given profit and amount invested, which formula would you use?

To determine the rate of return given profit and amount invested, which formula would you use?

• A. rate of return = profit ÷ amount invested
• B. rate of return = amount invested ÷ profit
• C. rate of return = profit × amount invested
• D. rate of return = profit + amount invested

Answer: (A)

The rate of return is a measure of how much profit you earn for each dollar you invested. Expressing it as profit divided by the amount invested gives that proportion directly, showing the profit-per-dollar invested. For example, earning $200 on a $1,000 investment yields a rate of return of 200/1000 = 0.20, or 20% when expressed as a percentage. The other forms don’t express this proportional relationship: dividing the investment by the profit reverses the ratio, multiplying profit by investment mixes amounts in a way that isn’t a rate, and adding them simply sums totals rather than showing the return relative to the investment.

The rate of return is a measure of how much profit you earn for each dollar you invested. Expressing it as profit divided by the amount invested gives that proportion directly, showing the profit-per-dollar invested. For example, earning $200 on a $1,000 investment yields a rate of return of 200/1000 = 0.20, or 20% when expressed as a percentage. The other forms don’t express this proportional relationship: dividing the investment by the profit reverses the ratio, multiplying profit by investment mixes amounts in a way that isn’t a rate, and adding them simply sums totals rather than showing the return relative to the investment.