Rate of Return

Rate of Return

In an investment situation, the ratio between the revenue obtained and the initial down payment.

The revenue obtained is the final value, after a certain number of periods, of the amount invested at an established annual interest rate.


If we invest $1000 at an interest rate of 5% compounded annually, the final value after 10 years will be given by

\(C_n = C_0 · (1 + i)^n\), or \(C_{10} = 1000 · 1.05^{10} ≈ 1628.89 \)

Therefore, the rate of return is given by

\(\dfrac{1628.89}{1000} ≈ 162.9\%\)

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