1. What is Average Rate of Return?

The Average Rate of Return (ARR) is a financial metric that calculates the average annual return on an investment over a specified period. It provides a simple measure of investment performance by averaging the returns across multiple periods.

2. How Does the Calculator Work?

The calculator uses the ARR formula:

Where:

• \( ARR \) — Average Rate of Return (%)
• \( \sum R \) — Sum of all returns
• \( n \) — Number of periods

Explanation: The equation calculates the arithmetic mean of all returns over the investment period.

3. Importance of ARR Calculation

Details: ARR is important for comparing investment performance, evaluating portfolio returns, and making informed investment decisions. It provides a straightforward measure of average performance over time.

4. Using the Calculator

Tips: Enter comma-separated return values in percentage format (e.g., "5, 8, 12, -2, 10"). All values must be valid numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between ARR and CAGR?
A: ARR calculates simple average return, while CAGR (Compound Annual Growth Rate) accounts for compounding effects over time.

Q2: When should I use ARR?
A: ARR is useful for quick comparisons and simple return calculations, but may not reflect actual compounded growth.

Q3: Can ARR be negative?
A: Yes, if the investment experiences losses over the period, ARR can be negative.

Q4: What are good ARR values?
A: Good ARR values depend on the investment type and market conditions. Generally, positive returns above inflation are desirable.

Q5: Does ARR consider risk?
A: No, ARR only calculates average returns and does not account for investment risk or volatility.