3UIUC%20FIN%20300%20Free%20Market%20Economic%20Decision-Makers%20%28FA10%29%201.0

3UIUC%20FIN%20300%20Free%20Market%20Economic%20Decision-Makers%20%28FA10%29%201.0

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: UNIVERSITY OF ILLINOIS College of Business - Department of Finance - Finance 300 (Financial Markets) Professor James Jackson Individuals (Risk-Averse; Return Maximizing) In economics, the role or purpose of the individual is to maximize utility. In finance, we consider utility to be determined by a process of maximizing returns, while minimizing risk. So, the first part of the decision-making process is to calculate the return on investment. Basic return on investment (ROI) is the ratio of the profit relative to the initial cost of the investment, ROI = P t+1 – P t / P t where P t equals the initial market price, or the price at which the investor has purchased the asset, and P t+1 equals the final market price, or the price at which the investor has sold the asset. So, if an investor buys a given quantity of stock for $100 per share, and then later sells the stock for $110 per share, then the ROI equals ROI = $110 – $100 / $100 = 10.00%....
View Full Document

This note was uploaded on 02/10/2011 for the course FIN 300 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

Page1 / 2

3UIUC%20FIN%20300%20Free%20Market%20Economic%20Decision-Makers%20%28FA10%29%201.0

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online