Percentage vs. Dollar Returns

Percentage vs. Dollar Returns
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  • 0:02 Percentage vs. Dollar Returns
  • 0:34 Dollar Returns
  • 1:32 Percentage Returns
  • 3:08 Which Method to Use?
  • 3:41 Lesson Summary
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Lesson Transcript
Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

In this lesson, we will discuss the difference between percentage and dollar amount returns on investments. By the end of the lesson, you will be able to calculate and compare these figures.

Percentage vs. Dollar Returns

Last year Bob bought 100 shares of his favorite company at what he thought was a bargain price: $50.00 a share. Now he's held those shares for a year, and the stock is trading at $65.50 a share. The stock also paid out a $1.00 dividend during the time he held it. He figures the stock is unlikely to stay on a winning streak and decides to lock in his gains by selling the shares. Let's take a look at how Bob can express his investment gains in terms of both dollar and percentage amounts.

Dollar Returns

Figuring the dollar return of an investment is a straightforward process. The dollar return is the actual currency return gained from an investment. Recall that the difference between the buy and sell price was $15.50: $50 when Bob purchased it minus $65.50 when he sells equals $15.50. And on top of that, Bob received a $1.00 dividend. His total dollar amount return is, therefore, $16.50 per share, or $1,650 for the entire block of 100 shares. The formula for figuring dollar amount returns looks like this:

Sale Price - Purchase Price + Dividends = Return in Dollars

$65.50 - $50.00 + 1.00 = $16.50 per share

100 X $16.50 = $1,650 (Total Dollar Return)

Percentage Returns

What if Bob wants to compare his return against other investments with different dollar amounts? If he earns the same amount of dollars on his next investment, has he actually done as well with that trade as his last investment? The percentage return allows Bob to make that comparison. It expresses the rate of return as a fraction of 100.

The formula for percentage return is:

(Sale Price - Purchase Price + Dividends) / Purchase Price

($65.50 - $50 + $1.00) / $50

$16.50 / 50 = 0.33

Percentage Return = 33%

Let's say Bob used all his $1,650 on top of his original $5,000 dollars to buy another 100 shares of stock. This time he sells it for a dollar value of $8,300. No dividend was granted this time. Again, he has gained $1,650 on this trade. But what does his percentage return look like compared to the last time?

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