How to Calculate Rate of Return

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In order to calculate rate of return, a person needs their current value, how much their investments are worth and how much the investments were purchased at. Calculate rate of return by subtracting current value by original value and dividing that by the original value with lessons from a math teacher in this free video on math calculations for daily life.

Part of the Video Series: Math in Daily Life
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Video Transcript

How do you figure out how much you've lost or gained on your investments whether it be a stock or an overall portfolio? Hi, I'm Jimmy Chang, I've been teaching college mathematics for almost a decade and we're here to calculate the rate of return which gives you a glimpse as to how well your investments are doing, whether it be positive or negative. And it's actually a very straight forward formula in that you need two things. Number one, you need your current value, how much your investments are worth, individually or collectively and how much you purchased the investments at. Because the formula goes something like this. You take the current value of your investment, how much your stock is worth currently, subtract it by the original value, how much you purchased it at and divide it by the original value which is what you had again up in the numerator. And here's a basic illustration as to how this formula is applied. Suppose your stock currently is thirty four dollars and twenty five cents and supposed that you had purchased it at twenty nine fifty. What you would do is you would take the thirty four twenty five subtract it by the twenty nine fifty and then of course your denominator is the same as your original value. Now using a calculator to do this is going to be a little bit more straight forward. When you do the subtraction you're going to find out that the numerator is going to be four dollars and seventy five cents. In this case you've gained four dollars and seventy five cents. But to figure out how much of a percentage gain this is you divide by twenty nine point five. Now rounding to three decimal places you're going to get point one six one. Now what does that mean? Converting it to a percentage gives you more of a practical idea as to how well the stock is doing. But converting a decimal to a percent, just convert it to two decimal places to the right, move the decimal shift and you're going to find out that your stock in this particular case has gained sixteen point one percent which is actually not bad given today's environment. So, my name is Jimmy Chang and that is how you calculate the rate of return.


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