What is Rate of Return ROR?

what is the formula for rate of return

The formula to calculate IRR is very complex and most often requires a calculator or software. From basic definitions to pros and cons, our guide has all you need to know about build-to-rent. So for example, an investment of $10,000 that goes up to $16,000 over the course of 3 years has a CAGR of 16.96%. Return can mean different things to different people, and it’s important to know the context of the situation to understand what they mean. In addition to the above methods for measuring returns, there are several other types of formulas.

The simple annual average ROI of 10%–which was obtained by dividing ROI by the holding period of five years–is only a rough approximation of annualized ROI. This is because it ignores the effects of compounding, which can make a significant difference over time. The longer the time period, the bigger the difference between the approximate annual average ROI, which is calculated by dividing the ROI by the holding period in this scenario, and annualized ROI. But it is more complicated in other cases, such as calculating the ROI of a business project that is under consideration.

what is the formula for rate of return