Lessons in computing returns – II Simple returns

SIMPLE 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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  1. Lessons in computing returns – I Percentages

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 !

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