Personal Rate of Return Calculator
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The Personal Rate of Return Calculator is designed to help you determine the annualized rate of return on your investment. This rate considers the initial amount invested, the final value of the investment, and the number of years the money was invested.
How It Works
The calculator uses the following formula for calculating the annualized rate of return:
\[ \text{Annual Rate of Return} = \left(\frac{\text{Final Value}}{\text{Initial Investment}}\right)^{\frac{1}{\text{Years Invested}}} - 1 \]
This formula provides the geometric mean return per year, giving a more accurate picture of performance over time compared to simple averages.
Example Calculation
If you initially invested $10,000, the final value is $15,000 after 5 years:
\[ \text{Annual Rate of Return} = \left(\frac{15000}{10000}\right)^{\frac{1}{5}} - 1 = 0.0845 \text{ or } 8.45\% \]
Importance
Understanding your personal rate of return allows you to measure how effectively your investments are growing and can help in comparing different investment options. It is particularly useful for long-term financial planning and tracking progress toward financial goals.