Rate of Return Calculator

What is Rate of Return?

Rate of return is a key financial metric that measures the gain or loss generated by an investment over a specific period, expressed as a percentage of the initial investment amount. It helps investors evaluate the performance of their investments and compare different investment opportunities. The annualized rate of return is particularly useful as it standardizes returns over different time periods, making it easier to compare investments with different holding periods.

Understanding the Calculator's Inputs

• Initial Amount: The original amount of money you invested at the beginning of the investment period.
• Final Amount: The total value of your investment at the end of the period, including any gains or losses.
• Investment Period: The length of time (in years) that you held the investment. This can include partial years for more precise calculations.
• Extrapolation Period: An optional feature that projects how your investment might grow if it continues to earn the same rate of return over a longer time horizon.

How Rate of Return is Calculated

Our calculator uses the compound annual growth rate (CAGR) formula to determine the annualized rate of return. The formula is: Rate = (Final Value / Initial Value)^(1/Years) - 1. This method accounts for the compounding effect and provides a more accurate representation of investment performance compared to simple average returns, especially for investments held over multiple years.