Rate of return: Difference between revisions

Latest revision as of 02:21, 6 January 2024

The investor's return on an investment, expressed as a proportion of the amount invested.

Most commonly expressed as a percentage.

Example

GBP 1 million is invested.

GBP 1.03 million is repayable at the end of the period.

The rate of return per period (r) is:

r = (End amount / Start amount) - 1

Which can also be expressed as:

r = (End / Start) - 1

= (1.03 / 1.00) - 1

= 0.0300

= 3.00% per period

The rate of return in the example above has been calculated and stated on a periodic basis.

Rates of return are often also quoted on an annual basis, following the convention for the market in which the proposed deal is being negotiated.

@@ Line 11: / Line 11: @@
-The periodic rate of return (r) is:
+The rate of return per period (r) is:
 r = (End amount / Start amount) - 1
-Which can also be expressed as:
+''Which can also be expressed as:''
 r = (End / Start) - 1
-''or''
+= (1.03 / 1.00) - 1
+= 0.0300
-r = <math>\frac{End}{Start}</math> - 1
+= '''3.00%''' per period
-= <math>\frac{1.03}{1}</math> - 1
+== Basis of quoting rates of return ==
-= 0.03
+The rate of return in the example above has been calculated and stated on a [[periodic]] basis.
-= '''3%'''
+Rates of return are often also quoted on an annual basis, following the convention for the market in which the proposed deal is being negotiated.
 == See also ==
+* [[Conventional year]]
+* [[Cost of capital]]
+* [[Discount rate]]
+* [[Effective annual rate]]
+* [[Expected rate of return]]
+* [[Nominal annual rate]]
+* [[Periodic]]
 * [[Periodic rate]]
 * [[Real return]]
 * [[Return]]
+* [[Risk]]
 * [[Yield]]
-[[Category:Corporate_finance]]
+[[Category:Accounting,_tax_and_regulation]]
+[[Category:The_business_context]]