Investment Analysis of Mark

Investment Overview

• Mark made two smart investments three years ago:
  • Rare Coin: Invested $400, sold for $1000.
  • Company A Share: Bought for $100, collected $30 in dividends, sold for $250.

Profit Calculation

1. Rare Coin:

   • Cost: $400
   • Sale Price: $1000
   • Profit: $1000 - $400 = $600

2. Company A Share:

   • Cost: $100
   • Sale Price: $250
   • Dividends Collected: $30
   • Total Return: $250 + $30 = $280
   • Profit: $280 - $100 = $180

Return on Investment (ROI)

• ROI measures the efficiency of an investment.

1. Rare Coin ROI:

   • Formula: Profit / Investment
   • Calculation: $600 / $400 = 150%

2. Company A Share ROI:

   • Calculation: $180 / $100 = 180%

Conclusion

• Comparison:
  • Coin profit: $600, ROI: 150%
  • Share profit: $180, ROI: 180%
• Analysis:
  • The coin made more money but also cost more.
  • The share had a higher ROI despite lower profit.

Important Considerations

• Limitations of ROI:
  • Does not consider the duration of the investment.
  • An 80% ROI over 3 years vs 30 years: significantly different value of time.
• Always understand what and why you're measuring in investments.