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Let P t be the price of a security at time t, including any cash dividends or interest, and let P t − 1 be its price at t − 1. Let RS t be the simple rate of return on the security from t − 1 to t.
The rate of return on a portfolio can be calculated indirectly as the weighted average rate of return on the various assets within the portfolio. [3] The weights are proportional to the value of the assets within the portfolio, to take into account what portion of the portfolio each individual return represents in calculating the contribution of that asset to the return on the portfolio.
An annual rate of return is a return over a period of one year, such as January 1 through December 31, or June 3, 2006, through June 2, 2007, whereas an annualized rate of return is a rate of return per year, measured over a period either longer or shorter than one year, such as a month, or two years, annualized for comparison with a one-year ...
Return on investment (ROI) or return on costs (ROC) is the ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favourably to its cost.
The third opportunity has an 80% chance of success with a 50% ROR. For each investment, if it is not successful the investor will lose his entire initial investment. The expected rate of return for the first investment is (.6 * .7) + (.4 * -1) = 2%; The expected rate of return for the second investment is (.45 * .2) + (.55 * -1) = -46%
In business and for engineering economics in both industrial engineering and civil engineering practice, the minimum acceptable rate of return, often abbreviated MARR, or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other projects. [1]
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The Brinson model performance attribution can be described as "arithmetic attribution" in the sense that it describes the difference between the portfolio return and the benchmark return. For example, if the portfolio return was 21%, and the benchmark return was 10%, arithmetic attribution would explain 11% of value added. [11]