Why use ROI if I can use effective compount interest?
According to Wikipedia,
return on investment = (gain from investment – cost of investment) /
cost of investment
However this calculation does not take into account the time passed between the invest and the return, so if I want to be able to compare different products, shouldn't I always calculate the effective compound interest rate?
i = (FV/PV)^(1/n) - 1
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Yes though I'd likely put a caveat on that. If you take short-term investments and extrapolate the results to get an annual result this can be misleading. For example, if a stock goes up 10% in a month, assuming this will continue for the next 11 months may not be a great idea. Thus, beware of how much data do you have in making these calculations.
When looking at long-term investments, the compound annual growth rate can be quite useful for comparison.
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