Rate of Return

What is Rate of Return?

The rate of return (RoR) is a financial measure that tells you how much profit or loss an investment has made over a certain period. This helps investors understand how well their investments have performed.

How to Calculate Rate of Return

The formula to calculate RoR is:

Rate of Return = ((Final Value - Initial Value) / Initial Value) × 100

Where:

• Current Value is the value of your investment at the end of the period.

• Original Value is what you originally invested.

Example:

If you bought stocks for $1,000 and later sold them for $1,200, the RoR would be:

Rate of Return = ((1200 - 1000) / 1000)× 100 = 20 %

You earned a 20% return on your original investment.

Why Rate of Return Matters?

• Evaluating Investment Performance: It helps you see how different investments compare. A higher RoR usually means a better return.

• Risk Assessment: By looking at past RoR, you can gauge the potential risk and reward of your investments.

• Financial Planning: Knowing your RoR can guide your future investment decisions and help set realistic goals.