Lessons in computing returns – II Simple returns
by J Victor on August 1st, 2010SIMPLE RETURNS:
Simple returns are used for evaluating short term returns.
BASICS FIRST:
The formula for computing simple returns is
Simple Return = FV / P  1
Where,
 FV is the amount received on maturity date and
 P is the amount invested
Example 1
You deposit Rs 10,000 in a bank for a year and gets Rs 11000 in return. The simple return would be –
 11,000 / 10,000 – 1 = 0.1 or 10%
Example 2
You purchased 200 shares of ABC Company at 50 per share. You paid Rs 300 as commission to your broker. On a later date, you sell the stock for Rs 75 and pay a commission of Rs 450 to the broker. What is the simple return on investment?
Total cost of the share = number of shares x rate + commission paid = Rs 10,300
Sale proceeds = number of shares x rate – commission paid =Rs 14550
So, the simple return will be as follows:
 14550 / 10300 1
 1.41 – 1 = .41 or 41%
Example 3
You purchased 200 shares of DEF Company at 50 per share. You paid Rs 300 as commission to your broker. On a later date the company declares dividend of Rs 2 per share. You sell the stock for Rs 75 and pay a commission of Rs 450 to the broker. What is the simple return on investment?
The simple return will be as follows:
Total cost = 10,300
Total returns = 14,550 + 400 = 14, 950
Simple returns would be
 14950 / 10,300 – 1
 1.45 – 1 = 0.45 or 45%
That’s about simple returns. Remember, simple returns are useful only for short term investments.
Till my next post…
….. Have a nice day !!
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2 Responses to “Lessons in computing returns – II Simple returns”
john
May 7, 2013 at 9:41 pm
Hi Jin,
Thanks for your great service. I just found something wrong with example 3. The total return must be 14950 = 14550 + 400.
J Victor
May 8, 2013 at 11:25 pm
yes. that was an error.
It has been corrected
thankyou for noting that !