To solve an investment problem, which expression correctly represents the formula described?

To solve an investment problem, which expression correctly represents the formula described?

• A. profit divided by amount invested multiplied by rate of return
• B. profit x amount invested ÷ rate of return
• C. selling price minus cost
• D. income ÷ capitalization rate

Answer: (A)

Think about how return from an investment is built up in two steps. First, you measure how much profit you earn per dollar invested, which is profit divided by the amount invested. That gives you the return per dollar. Then you apply the overall rate of return to that per-dollar figure by multiplying, which scales the per-dollar return to the total return. So the expression that matches this description is: profit divided by amount invested, then multiplied by the rate of return. It directly captures both steps—per-dollar profit and the application of the rate of return—to yield the overall return. The other forms don’t fit the described process. For example, selling price minus cost is just gross profit without relating to investment size or a rate; income divided by capitalization rate is the value formula (Value = Income / Cap Rate), not a return calculation based on profit and investment; and multiplying profit by the investment (profit × investment) doesn’t reflect applying a rate to a per-dollar return.

Think about how return from an investment is built up in two steps. First, you measure how much profit you earn per dollar invested, which is profit divided by the amount invested. That gives you the return per dollar. Then you apply the overall rate of return to that per-dollar figure by multiplying, which scales the per-dollar return to the total return.

So the expression that matches this description is: profit divided by amount invested, then multiplied by the rate of return. It directly captures both steps—per-dollar profit and the application of the rate of return—to yield the overall return.

The other forms don’t fit the described process. For example, selling price minus cost is just gross profit without relating to investment size or a rate; income divided by capitalization rate is the value formula (Value = Income / Cap Rate), not a return calculation based on profit and investment; and multiplying profit by the investment (profit × investment) doesn’t reflect applying a rate to a per-dollar return.