A rate of return (RoR) is basically how much money you make or lose on an investment over a certain time frame, shown as a percentage of what you initially put in. When you figure out the rate of return, you’re looking at how much the value has changed from the start to the finish of that period.
Learn more about RoR (Rate of Return)
A rate of return (RoR) can be used for all kinds of investments, whether it’s real estate, bonds, stocks, or even fine art. The RoR applies to any asset as long as it’s bought at one time and generates cash flow later on. When evaluating investments, people often look at historical rates of return, comparing them with similar assets to figure out which ones are the best bets. A lot of investors prefer to set a target rate of return before deciding where to put their money.
Calculation of RoR (Rate of Return)
The formula to calculate the rate of return (RoR) is:
Rate of return = [ (Current value − Initial value) / Initial value ] × 100The basic growth rate, often referred to as the simple rate of return or return on investment (ROI), is pretty straightforward. When you factor in the time value of money and inflation, the real rate of return can be seen as the net cash flows you get from an investment, adjusted for inflation.
Conclusion
The rate of return (ROR) is an easy-to-calculate figure that indicates how much profit or loss an investment or project has made over a specific time frame. It’s shown as a percentage of the original amount invested.
On the other hand, the internal rate of return (IRR) also evaluates how well investments or projects are doing, but instead of showing the total growth from the beginning, it focuses on the annual growth rate. Then there’s the Compound Annual Growth Rate (CAGR), which also highlights the yearly growth of an investment, but it factors in the impact of compound interest.