# Rate of return calculator

To calculate the rate of return, you’ll need the initial investment value, the final investment value, and the time period over which the investment was held.

Page written by Ian Hawkins. Last reviewed on June 25, 2024. Next review due July 1, 2025.

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This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.

Rate of return

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## What is rate of return?

Rate of return is the gain or loss on an investment over a specific period, typically expressed as a percentage of the initial investment amount. It calculates the profitability of an investment relative to its cost and is a key metric used by investors to assess the performance and potential of different investment opportunities.

The rate of return takes into account both capital gains (or losses) and income generated from the investment. It provides investors with a standardised way to compare the returns of various investments and evaluate their effectiveness in achieving financial goals.

## How to calculate rate of return

The formula for calculating the rate of return is as follows:

RateÂ ofÂ Return=(FinalÂ Valueâˆ’InitialÂ Value)/InitialÂ ValueÃ—100

Here’s how to calculate it step-by-step:

1. Subtract the Initial Value from the Final Value. This will give you the total change in value over the investment period.
2. Divide the result from step 1 by the Initial Value. This will give you the relative change as a decimal.
3. Multiply the result from step 2 by 100 to convert it into a percentage.