Rate of Return (RoR) Calculator
How to Calculate Your Rate of Return
The Rate of Return (RoR) is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment's initial cost. Understanding your RoR helps you compare the efficiency of different investments.
The Formula for Simple Rate of Return
To find the simple rate of return, you subtract the initial value from the current value, add any income received (like dividends), and divide that total by the initial cost.
RoR = [(Final Value – Initial Value + Dividends) / Initial Value] × 100
The Formula for Annualized Return (CAGR)
Annualized return provides the geometric mean of the return per year. It is more accurate for comparing investments held over different durations.
Annualized Return = [(Final Value / Initial Value)(1 / Years) – 1] × 100
Example Calculation
Imagine you invested $5,000 in a stock. After 3 years, the stock is worth $6,500, and you received $200 in dividends over that period.
- Total Gain: $6,500 – $5,000 + $200 = $1,700
- Simple RoR: ($1,700 / $5,000) × 100 = 34%
- Annualized Return: [($6,700 / $5,000)(1/3) – 1] × 100 ≈ 10.25%