Question

Explain what steps would you take to compare the worthiness of two different financial investments? How would you choose which investment is a more attractive choice?

Answer 1

Meaning of Financial Investment:-A  Financial Investment is an asset or instrument purchased with the intention of selling said asset for a higher price than the purchaseprice at some future point in time, or with the hope that the asset will directy bring income

Return on investment is performance measure to used to evaluate the returns of am investment or to compare the relative efficiency of different investment. RoI measuresthe return of an investment relative to the cost of investment.

Formula of ROI: Gain from investment-cost of investment/ cost of investment*100

Return on investment helps investors to determine which investment opportunties are most preferable or attractive

ForExample: Let us consider investment A and investment B, Each cost 100$.

Cash flow for Investment A=500$

cash flow for Investment B=400$

Calculating Return on investment for both Investment A and B would give us an indication of which investment is better. In caseof A

ROI= Gain from investment-cost of investment/ cost of investment*100

500$-100$/100*100=400%

ROI in case of B

400$-100$/100$*100=300%

In this case A investment is more favourable in Comparison of B

Conclusion: So from above example we can conclude Return on investment is better option to compare to financial investmet