1. What is Rate of Return?

The Rate of Return (RoR) is the percentage change in the value of an investment over a period of time. It measures the gain or loss on an investment relative to the amount initially invested.

2. How Does the Calculator Work?

The calculator uses the Rate of Return formula:

Where:

• \( Current\_value \) — The current value of the investment
• \( Initial\_value \) — The original amount invested

Explanation: The formula calculates the percentage change between the current value and the initial investment.

3. Importance of Rate of Return

Details: Rate of Return is a fundamental measure in finance that helps investors evaluate the performance of investments, compare different investment opportunities, and make informed financial decisions.

4. Using the Calculator

Tips: Enter both current and initial values in dollars. The initial value must be greater than zero for the calculation to be valid.

5. Frequently Asked Questions (FAQ)

Q1: What's a good rate of return?
A: A "good" RoR depends on the investment type and risk level. Historically, the S&P 500 averages about 7-10% annual return after inflation.

Q2: How is annualized rate of return different?
A: Annualized RoR adjusts the return for the time period, showing what the equivalent yearly return would be.

Q3: Can rate of return be negative?
A: Yes, a negative RoR indicates a loss on the investment.

Q4: Does this account for additional contributions?
A: No, this simple calculator only accounts for initial and current values without considering additional investments or withdrawals.

Q5: How does inflation affect rate of return?
A: The calculator shows nominal return. For real return (after inflation), you'd need to adjust the result for inflation.