What is the difference between the Rate of Return and Interest Rate? What is a good rate of return?

Students are often confused between the Rate of Return and Interest rate. Though most of the time they think both of them are the same or almost the same, both are completely different. Now, we will try to clear confusion regarding the rate of return and Interest Rate.

Rate of Return

The Rate of return indicates how much return is generated based on the initial investment made. The rate of return is expressed as a percentage and is based on the capital and the annual return, which is the amount earned over the course of a year.

The rate of return on an investment is the percentage of loss or gain generated by an investment. This value is based on the initial investment, or capital, and the amount regained over a certain period, such as one year for an annual rate of return.

Finally, a rate of return is the amount of money you have earned against your investment divided by the investment you have made initially.

Rate of return=[Initial value(Current value−Initial value)​]×100

Interest Rate

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The interest rate on a loan can be determined by dividing the interest amount paid on a loan over one year by the value of the initial loan amount, or the principal. On the other hand the rate of return can be calculated by subtracting the capital from the return, and then dividing this value by the capital to determine the rate

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