1. What is Rate of Return?

Rate of Return (RoR) is the percentage gain or loss on an investment over a specified period, calculated as the change in value divided by the initial investment cost. It measures the performance of investments and helps compare different investment opportunities.

2. How Does the Calculator Work?

The calculator uses the Rate of Return formula:

Where:

• \( CV \) — Current Value of investment ($)
• \( IV \) — Initial Value of investment ($)

Explanation: The formula calculates the percentage change in value from the initial investment to the current value, representing the investment's performance.

3. Importance of Rate of Return Calculation

Details: Calculating rate of return is essential for evaluating investment performance, comparing different investment options, making informed financial decisions, and assessing portfolio growth over time.

4. Using the Calculator

Tips: Enter the initial investment value and current value in dollars. Both values must be positive numbers, with the initial value greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good rate of return?
A: A "good" rate of return depends on the investment type, risk level, and market conditions. Historically, stock market returns average 7-10% annually, but this varies significantly.

Q2: Can rate of return be negative?
A: Yes, if the current value is less than the initial investment, the rate of return will be negative, indicating a loss on the investment.

Q3: Does this calculator account for the time period?
A: This calculator provides the total return percentage. For annualized returns, you would need to adjust for the specific time period of the investment.

Q4: What's the difference between RoR and ROI?
A: Rate of Return (RoR) and Return on Investment (ROI) are often used interchangeably, though ROI sometimes refers to a more comprehensive measure that might include additional costs.

Q5: Should I include dividends in the current value?
A: For a complete picture of your return, yes. The current value should include both capital appreciation and any dividends or distributions received.