What is the formula for the rate of return?


Quick Answer

To determine the rate of return, (W) = change in X, t= at time t, the formula would be %W = ((X*t)-(X*t)-1) divided by (X*t)-1. The return on investment (ROI) must first be determined to solve this formula. The ROI is determined by subtracting the initial investment from the earnings, then dividing that number by the initial investment.

Continue Reading

Full Answer

The rate of return is the percentage rate of return that is earned from investments and earnings. Once earnings are calculated, the rate of return can be determined. The formula is %W = ((X*t)-(X*t)-1) divided by (X*t)-1, with X being the amount difference between investments and earnings. This formula is called the rate of return formula in finance, but in math it is called the percentage change" formula. This formula is equal to percent change = (later - earlier) / earlier times 100 percent.

The return on investment can have a different formula for different investments, such as business investment versus real estate investment. The rate of return can also vary day by day, as the daily earnings can fluctuate, so this formula may have a different amount every day. A simpler method of figuring out the rate of return is to guess a percentage based on assumptions determined by the numbers. In addition to the general rate of return, there is an internal rate of return, or IRR, which is the interest rate that makes the net present value, or NPV equal zero.

Learn more about Investing

Related Questions