The percentage change in the value of an asset over a specific period of time (investment horizon). The following equation is typically used in calculating this rate:
Rate of return = (current value – initial value)/ initial value x 100
For example, if a depositor put $100 in a bank savings account that pays 5% interest per year. By the end of the year the depositor will have earned $5 in interest. This amount represents the annual rate of return on his investment. As a percentage, it is simply 5%. Similarly, if a stock rises from $50 a share to $75, over a year, then
Rate of return = [(75- 50)/ 50] × 100 = 50%
