Free Rate of Return Calculator

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Free Rate of Return Calculator

Net Gain/Loss:
Simple ROI:
Annualized Return (CAGR):

About the Free Rate of Return Calculator

Understanding the performance of your investments is crucial for long-term financial planning. This free rate of return calculator allows investors, business owners, and students to quickly determine the profitability of an asset or portfolio over a specific period.

Unlike simple profit calculators, this tool computes both the simple Return on Investment (ROI) and the Annualized Rate of Return (CAGR). The annualized metric is particularly important because it allows you to compare the efficiency of investments held for different time horizons.

How Rate of Return is Calculated

There are two primary ways to measure your investment performance using this tool:

1. Simple Rate of Return (ROI)

This metric tells you the total percentage growth of your investment, ignoring the time factor. It is useful for short-term trades or simple comparisons.

Formula:
ROI = ((Ending Value + Income – Initial Value) / Initial Value) × 100

2. Annualized Rate of Return (CAGR)

The Compound Annual Growth Rate (CAGR) represents the smoothed annual rate of growth. It answers the question: "If this investment grew at a steady rate every year, what would that rate be?"

Formula:
CAGR = ((Ending Value + Income) / Initial Value) ^ (1 / Years) – 1

Understanding the Inputs

  • Initial Investment Value: The total amount of capital you started with.
  • Ending Investment Value: The current market value of the asset or the price at which you sold it.
  • Dividends & Income: Any cash flow generated by the asset (e.g., stock dividends, bond interest, or rental income) during the holding period. This is often overlooked but essential for accurate total return calculations.
  • Investment Duration: The number of years you held the asset. This is required to calculate the annualized return.

Why Annualized Return Matters

Imagine Investment A returns 20% over 1 year, and Investment B returns 30% over 5 years. Simply looking at the total return (30% > 20%) is misleading. When annualized, Investment A is far superior. This free rate of return calculator performs the complex exponentiation math required to reveal these insights instantly.

Common Use Cases

  • Analyzing Stock Market Portfolios
  • Evaluating Real Estate Appreciation
  • Calculating Small Business Growth
  • Assessing Mutual Fund Performance
function calculateRateOfReturn() { // Get input values var initialStr = document.getElementById("initialInvest").value; var finalStr = document.getElementById("finalInvest").value; var divStr = document.getElementById("dividends").value; var timeStr = document.getElementById("timePeriod").value; var resultsArea = document.getElementById("results-area"); // Convert to numbers var initial = parseFloat(initialStr); var finalVal = parseFloat(finalStr); var dividends = parseFloat(divStr); var years = parseFloat(timeStr); // Validation if (isNaN(initial) || isNaN(finalVal) || isNaN(years)) { alert("Please enter valid numbers for Initial Value, Ending Value, and Duration."); return; } if (initial === 0) { alert("Initial investment cannot be zero."); return; } if (isNaN(dividends)) { dividends = 0; } // Calculations // 1. Net Gain (Profit in $) var totalFinalValue = finalVal + dividends; var netGain = totalFinalValue – initial; // 2. Simple ROI (%) var roi = (netGain / initial) * 100; // 3. CAGR / Annualized Return (%) // Formula: (Ending / Beginning) ^ (1/n) – 1 var cagr = 0; var cagrDisplay = "N/A"; if (years > 0 && totalFinalValue >= 0 && initial > 0) { var growthFactor = totalFinalValue / initial; var exponent = 1 / years; cagr = (Math.pow(growthFactor, exponent) – 1) * 100; cagrDisplay = cagr.toFixed(2) + "%"; } else if (years === 0) { cagrDisplay = "Undefined (0 years)"; } else { cagrDisplay = "Error (check inputs)"; } // Display Results resultsArea.style.display = "block"; // Format Currency var gainElement = document.getElementById("res-gain"); gainElement.innerHTML = "$" + netGain.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); if(netGain >= 0) { gainElement.className = "result-value positive"; } else { gainElement.className = "result-value negative"; } // Format ROI var roiElement = document.getElementById("res-roi"); roiElement.innerHTML = roi.toFixed(2) + "%"; if(roi >= 0) { roiElement.className = "result-value positive"; } else { roiElement.className = "result-value negative"; } // Format CAGR var cagrElement = document.getElementById("res-cagr"); cagrElement.innerHTML = cagrDisplay; // Simple logic for CAGR color (only if it's a number) if (typeof cagr === 'number' && !isNaN(cagr)) { if(cagr >= 0) { cagrElement.className = "result-value positive"; } else { cagrElement.className = "result-value negative"; } } }

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