Rate of return: Difference between revisions
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== Basis of quoting rates of return == | |||
The rate of return in the example above has been calculated and stated on a [[periodic]] basis. | The rate of return in the example above has been calculated and stated on a [[periodic]] basis. | ||
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* [[Conventional year]] | * [[Conventional year]] | ||
* [[Cost of capital]] | * [[Cost of capital]] | ||
* [[Discount rate]] | |||
* [[Effective annual rate]] | * [[Effective annual rate]] | ||
* [[Expected rate of return]] | * [[Expected rate of return]] | ||
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* [[Return]] | * [[Return]] | ||
* [[Yield]] | * [[Yield]] | ||
Revision as of 02:08, 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
Basis of quoting rates of return
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.
