Rate of Return Calculator

Understanding Rate of Return (RoR)

The Rate of Return (RoR) is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment's initial cost. It accounts for both capital gains (the change in asset price) and any cash flows derived from the investment, such as stock dividends or bond interest payments.

Formula for Rate of Return

The standard simple Rate of Return is calculated using:

$$\text{Rate of Return (\%)} = \frac{(\text{Current Value} + \text{Dividends}) - \text{Initial Cost}}{\text{Initial Cost}} \times 100$$

Annualized Rate of Return (CAGR)

When evaluating investments held over multiple years, comparing absolute total returns can be misleading. The Annualized Rate of Return (Compound Annual Growth Rate, or CAGR) measures the geometric mean return per year:

$$\text{Annualized Return (\%)} = \left[\left(\frac{\text{Total End Value}}{\text{Initial Cost}}\right)^{\frac{1}{n}} - 1\right] \times 100$$