To determine the rate of return given profit and amount invested, which formula would you use?

• A. rate of return = profit ÷ amount invested
• B. rate of return = amount invested ÷ profit
• C. rate of return = profit × amount invested
• D. rate of return = profit + amount invested

Answer: (A)

The rate of return is a measure of how much profit you earn for each dollar you invested. Expressing it as profit divided by the amount invested gives that proportion directly, showing the profit-per-dollar invested. For example, earning $200 on a $1,000 investment yields a rate of return of 200/1000 = 0.20, or 20% when expressed as a percentage. The other forms don’t express this proportional relationship: dividing the investment by the profit reverses the ratio, multiplying profit by investment mixes amounts in a way that isn’t a rate, and adding them simply sums totals rather than showing the return relative to the investment.