Rate of Return Formula
The rate of return formula calculates the total return on an investment over a period of time. The nature of return can be either profitable or of loss. It is expressed in the form of a percentage and can be referred to as ROR. Let us study the rate of return formula using solved examples.
What Is Rate of Return Formula?
If the rate of return formula gives a positive value, that means that there is a gain or profit in the investment. A negative value for the rate of return formula means that a loss has occurred on the invested amount. The rate of return formula is given as,
Rate of Return = \(\dfrac{(\text{Current Value}  \text{Original Value})}{\text{Original Value}}\) × 100
R = \( \dfrac{V_c − V_o}{V_o}\) × 100
where,
 V_{c} = Current value
 V_{o} = Original value
Let us see the applications of the rate of return formula in the following section.
Solved Examples Using Rate of Return Formula
Solved Examples Using Rate of Return Formula

Example 1: An investor purchased a share at $10 and he had purchased 500 shares in the year 2017. After one year, he decides to sell them at $15 in the year 2018. Calculate the rate of return on his invested amount of $5,000.
Solution:
To find: rate of return on investment
Given:
Invested amount = $5,000
Using rate of return formula,
Rate of Return = \(\dfrac{(\text{Current Value}  \text{Original Value})}{\text{Original Value}}\) × 100
= \(\dfrac{(15 \times 500  10 \times 500)}{10 \times 500}\) × 100
= 50%
Answer: Rate of return on investment = 50%

Example 2: Sam bought a house for $250,000. He plans on selling the house six years later for $335,000, after deducting any realtor's fees and taxes. Calculate the rate of return on the complete transaction.
Solution:
To find: Rate of return on the complete transaction
Using rate of return formula,
Rate of Return = \(\dfrac{(\text{Current Value}  \text{Original Value})}{\text{Original Value}}\) × 100
= \(\dfrac{(335,000  250,000)}{250,000}\) × 100
= 34%
Answer: Rate of return on the complete transaction = 34%