Which metric measures return relative to cost, used to assess performance?

Prepare for the NGPF Personal Finance – Investing Test with multiple choice questions, hints, and explanations. Boost your financial literacy and investment skills. Get exam-ready!

Multiple Choice

Which metric measures return relative to cost, used to assess performance?

Explanation:
ROI shows how much return you earn relative to the amount you invested. It standardizes profit as a percentage of cost, making it easy to compare different investments. Compute it by taking the net gain (what you earned minus what you spent), dividing by the cost, and multiplying by 100. For example, investing 1,000 and ending with 1,200 yields a net gain of 200, so ROI is 200/1000 = 20%. This helps you evaluate performance across options of different sizes or timeframes. The other terms aren’t performance ratios: a market index is a benchmark of overall market performance, a discount broker is a type of broker with lower fees, and an IPO is the initial sale of stock to investors.

ROI shows how much return you earn relative to the amount you invested. It standardizes profit as a percentage of cost, making it easy to compare different investments. Compute it by taking the net gain (what you earned minus what you spent), dividing by the cost, and multiplying by 100. For example, investing 1,000 and ending with 1,200 yields a net gain of 200, so ROI is 200/1000 = 20%. This helps you evaluate performance across options of different sizes or timeframes. The other terms aren’t performance ratios: a market index is a benchmark of overall market performance, a discount broker is a type of broker with lower fees, and an IPO is the initial sale of stock to investors.

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