Personal Rate of Return Calculator

Formula

The formula to calculate the Personal Rate of Return (R) is:

\[ R = \left( \frac{V_f}{V_i} \right)^{\frac{1}{n}} - 1 \]

Where:

$ R $ is the Personal Rate of Return (decimal)
$ V_f $ is the Final Value of the investment ($)
$ V_i $ is the Initial Value of the investment ($)
$ n $ is the Total Number of Years

Definition

Personal Rate of Return (R): A measure of the performance of an individual's investment portfolio over a specific period of time.
Final Value of Investment (Vf): The value of the investment at the end of the period.
Initial Value of Investment (Vi): The value of the investment at the beginning of the period.
Total Number of Years (n): The duration over which the investment is measured.
Significance: The Personal Rate of Return helps in comparing the performance of different investments and assessing the effectiveness of an investment strategy.

Example

Let's say the final value of the investment (Vf) is $1500, the initial value of the investment (Vi) is $1000, and the total number of years (n) is 5. Using the formula:

\[ R = \left( \frac{1500}{1000} \right)^{\frac{1}{5}} - 1 = 1.5^{0.2} - 1 \approx 0.08447 \]

So, the personal rate of return is approximately 8.45%.