Return

In finance, return is the profit or loss made on an investment. It is calculated by subtracting the original investment from the final value, and then dividing the result by the original investment. For example, if you invest $100 and it grows to $110, your return is $10 ($110 - $100).

There are two main types of returns:

• Simple return: This is the profit or loss made on an investment over a single period of time. It is calculated by dividing the change in the investment's value by the original investment.
• Compound return: This is the profit or loss made on an investment over multiple periods of time. It is calculated by multiplying the simple return by the number of periods.

The compound return is often used to compare the performance of different investments over time. For example, if you invest $100 in an investment that earns a simple return of 10% per year, your investment will be worth $110 after one year, $121 after two years, and so on. However, if you invest $100 in an investment that earns a compound return of 10% per year, your investment will be worth $121 after one year, $146 after two years, and so on.

The difference between the simple and compound returns is due to the power of compounding. Compounding means that the interest you earn on your investment is added to your principal, and then you earn interest on that interest. This can lead to significant growth over time, even if the interest rate is relatively low.

Return is an important concept in finance because it is used to measure the performance of an investment. It is also used to compare different investments and to make investment decisions.