Formula for calculating returns

Answer 1

In finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage.

There are two ways to measure the rate of return on an investment.

1-Average annual rate of return (also known as average annual arithmetic return)

2-Compound rate of return (also called average annual geometric return)

Let's say you invest $100 in stock, which is called your capital. One year later, your investment yields $110. What is the rate of return of your investment? We calculate it by using the following formula:

((Return - Capital) / Capital) × 100% = Rate of Return

Therefore,

(($110 - $100) / $100) × 100% = 10%

Your rate of return is 10%.