Return on Investment (ROI) Quiz

What is the formula for Return on Investment (ROI)?

• ROI = (Revenue / Cost of Investment) x 100

• ROI = (Net Profit / Cost of Investment) x 100

• ROI = (Net Profit / Revenue) x 100

• ROI = (Cost of Investment / Net Profit) x 100

If an investment of $10,000 generates a return of $2,000, what is the ROI?

• 10%

• 50%

• 100%

• 20%

What does a positive ROI indicate?

• The investment has only covered the cost of the investment.

• The investment has generated less revenue than the cost of the investment.

• The investment has not generated any revenue.

• The investment has generated more revenue than the cost of the investment.

What does a negative ROI indicate?

• Profit

• Loss

• Break-even

• Growth

Calculate the ROI if the cost of investment is $8,000 and the return is $1,600.

• ROI = (1600 - 8000) / 1600 = 4 or 400%

• ROI = (8000 - 1600) / 8000 = 0.675 or 67.5%

• ROI = (8000 - 1600) / 1600 = 4 or 400%

• ROI = (1600 - 8000) / 8000 = -0.8 or -80%

Explain the significance of ROI in investment decision making.

• ROI only measures the short-term profitability of an investment

• ROI is significant in investment decision making as it helps in evaluating the efficiency and profitability of an investment.

• ROI is only used for evaluating the risk of an investment

• ROI is insignificant in investment decision making

How is ROI expressed?

• As a percentage

• In liters

• In miles

• In kilograms

What are the limitations of using ROI as a performance measure?

• Not accounting for the time value of money, not considering risk, and being influenced by accounting practices.

• Only considering the short-term gains

• Ignoring the impact of inflation

• Focusing solely on the financial aspect

How can an investor use ROI to compare different investment opportunities?

• By asking friends and family for their opinion on the investments

• By calculating the return on investment for each opportunity and comparing the percentages

• By comparing the color of the investment opportunities

• By ignoring the ROI and focusing on other financial metrics