How to Calculate Monetary Gain or Loss

Calculating monetary gain or loss is a fundamental skill for investors and financial professionals. It involves determining the difference between the purchase price and the selling price of an investment, and expressing that difference as a percentage of the original investment. This calculation allows investors to assess the performance of their investments and make informed decisions about their portfolios.

Key Facts

  1. Subtract the initial purchase price from the selling price. The result will be the gain or loss amount.
  2. Divide the gain or loss amount by the original purchase price of the investment.
  3. Multiply the result by 100 to calculate the percentage change in the investment.

For example, let’s say you purchased a stock for $100 and sold it for $120. To calculate the gain or loss:

Selling price – Purchase price = Gain or loss
$120 – $100 = $20 gain

To calculate the percentage gain or loss:

(Gain or loss / Purchase price) * 100 = Percentage gain or loss
($20 / $100) * 100 = 20% gain.

Steps for Calculating Monetary Gain or Loss

  1. Determine the Purchase Price

The purchase price is the initial cost of the investment when it was acquired. This information can be found on trade confirmations or brokerage statements.

  1. Determine the Selling Price

The selling price is the amount received when the investment is sold. It is important to note that the selling price may be different from the current market price if the investment is sold before maturity.

  1. Calculate the Gain or Loss

To calculate the gain or loss, subtract the purchase price from the selling price. If the result is positive, it represents a gain, and if it is negative, it represents a loss.

  1. Calculate the Percentage Gain or Loss

To calculate the percentage gain or loss, divide the gain or loss amount by the original purchase price and multiply the result by 100. This calculation expresses the gain or loss as a percentage of the initial investment.

Example of Calculating Monetary Gain or Loss

For example, let’s consider an investment that was purchased for $10,000 and sold for $12,000.

  1. Purchase Price

    $10,000

  2. Selling Price

    $12,000

  3. Gain or Loss

    $12,000 – $10,000 = $2,000 gain

  4. Percentage Gain or Loss

    ($2,000 / $10,000) * 100 = 20% gain

Conclusion

Calculating monetary gain or loss is a crucial step in evaluating the performance of investments. By following the steps outlined above, investors can accurately determine the gain or loss on their investments and make informed decisions about their portfolios.

Sources

FAQs

What is monetary gain or loss?

Monetary gain or loss refers to the difference between the purchase price and the selling price of an investment, expressed as a percentage of the original investment. It is a measure of the profit or loss incurred on an investment.

How do I calculate monetary gain or loss?

To calculate monetary gain or loss, follow these steps:

  1. Determine the purchase price of the investment.
  2. Determine the selling price of the investment.
  3. Subtract the purchase price from the selling price to find the gain or loss amount.
  4. Divide the gain or loss amount by the original purchase price.
  5. Multiply the result by 100 to express the gain or loss as a percentage.

What is the formula for calculating monetary gain or loss?

The formula for calculating monetary gain or loss is:

Related posts: