1. What is Rate of Return?

Rate of Return (RoR) is the gain or loss of an investment over a specified period, expressed as a percentage of the investment's cost. It helps investors evaluate the efficiency or profitability of an investment.

2. How Does the Calculator Work?

The calculator uses the Rate of Return formula:

Where:

• \( \text{gain} \) — The profit or return from the investment (in dollars)
• \( \text{cost} \) — The initial investment amount (in dollars)

Explanation: This formula calculates what percentage of the original investment was gained (or lost if negative).

3. Importance of Rate of Return Calculation

Details: Calculating rate of return is essential for comparing different investment opportunities, assessing portfolio performance, and making informed financial decisions.

4. Using the Calculator

Tips: Enter the gain and cost amounts in dollars. Both values must be positive numbers, with cost 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, the stock market has averaged about 7-10% annual return.

Q2: Can rate of return be negative?
A: Yes, if the investment loses value (gain is negative), the rate of return will be negative, indicating a loss.

Q3: How is this different from annualized return?
A: This calculator shows simple return. Annualized return accounts for the compounding effect over multiple periods.

Q4: Should I include additional costs?
A: For accurate calculation, include all relevant costs such as fees, commissions, and taxes in your cost basis.

Q5: Is this suitable for all investment types?
A: This simple calculation works for most investments, but complex investments with multiple cash flows may require more sophisticated methods.