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Kathleen Sindell, Ph.D.
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Rate of Return Formulas The return you receive from any investment (stocks, bonds, real estate) has two primary components: capital gains (or increase in value) and current income. The rate of return from an investment can be measured as: Rate of return = [(Ending Value - Beginning Value) + Income] / Beginning Value Therefore, if a share of stock goes from $20 to $22 in one year and also pays a dollar in dividends during the year, the total return is 15 percent. Rate of Return = [($22-$20) +1] / $20 = $2 + $1 / $20 = $3/$20 = 15% The formula specifically written for stocks is as follows: Rate of return = (P1 - Po) + D1 / Po Where: P1 = Price at the end of the period Po = Price at the beginning of the period D1 = Dividend income |
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