How to Calculate Initial Rate of Return

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You can calculate the initial rate of return on an investment by calculating its percentage increase or decrease during a given amount of time. Financial analysts usually base a rate of return on an investment's annual performance, meaning the percentage yield on an investment over the period of one year. An initial rate of return would be calculated using that investment's first year of existence.

Write this formula for calculating an initial rate of return:

Rate of Return = ((Investment value after one year - Initial investment) / Initial Investment) x 100 percent

 

Analyze your investment to obtain the values necessary to calculate its initial rate of return. For example, consider an investment of $25,000 that grew to $28,500 after one year.

 

Insert your investment's values into the equation to calculate your initial rate of return.

 

Example: Rate of Return = (($28,500 - $25,000) / $25,000) x 100 percent = 14 percent

 

The initial rate of return on this investment is 14 percent.

 

References

About the Author

Timothy Banas has a master's degree in biophysics and was a high school science teacher in Chicago for seven years. He has since been working as a trading systems analyst, standardized test item developer, and freelance writer. As a freelancer, he has written articles on everything from personal finances to computer technology.

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